HMRC have published a consultation ‘Scope of VAT Grouping’: it reviews aspects of the UK’s VAT grouping arrangements following decisions of the European Court.


  • The UK restricts membership of VAT groups to corporate entities.
  • The Court of Justice of the European Union (CJEU) has found that VAT grouping should not be restricted to entities with legal personality unless justified by prevention of abusive practices, tax evasion or avoidance.
  • HMRC are asking whether eligibility should be extended and what the new criteria should be.

Overseas branches

  • The UK treats the whole of a corporate entity including overseas establishments as being within a VAT group so that supplies between branches are disregarded.
  • The CJEU found that Sweden’s ‘establishment only’ policy of excluding overseas branches from a VAT group was not contrary to the VAT directive, so that supplies from the overseas head office to its Swedish branch were taxable.
  • HMRC put steps in place after this case to address risks of double and non-taxation arising from establishment only VAT groups in other member states and are asking about the impact of these changes.

Cost sharing

  • The VAT cost sharing exemption (CSE) enables a cost sharing group to be used by persons making exempt supplies or carrying out non-business activities.
  • HMRC are asking for views on the interaction between VAT grouping and CSE ahead of pending CJEU decisions.

The consultation closes on 27 February 2017.

HMRC consultation: Scope of VAT Grouping

Our guides:

VAT Groups

CJEU cases referred to

  • Eligibility: Larentia + Minerva and Marenave (C- 108/14 and C-109/14)
  • Overseas branches: Skandia America Corporation (C-7/13)
  • Cost sharing: Commission v Luxembourg (C-274/15), DNB Banka (C-326/15) and Arriva (C-605/15)



Consultation questions

Question 1: Which entities should be excluded from joining a VAT group and why? Where possible please provide illustrative examples.

Question 2: How can we strike the right balance between the range of entities allowed to join a VAT group and an easily administered eligibility test?

Question 3: If we move away from the current eligibility test, what could be the impact on businesses that are currently VAT grouped?

Question 4: What alternative tests could be employed that demonstrate both financial control, and economic and organisational links?

Question 5: How have the changes the UK introduced, following the Skandia CJEU decision, impacted business, both financially and operationally? Where possible please provide illustrative examples.

Question 6: Are there any other CJEU decisions that have impacted business in terms of UK VAT grouping, both financially and operationally?

Question 7: Do you have any views on the interaction between VAT grouping and CSE? In particular, what would be the impact on the CSE of widening eligibility for grouping?

Question 8: Do you have any comments on the assessment of equality and other impacts in the Tax impact assessment? For example:

a) What one-off and on-going costs and savings do you anticipate as a result of potential changes to UK VAT grouping?

b) Do you anticipate any other impacts on small and micro businesses that are not covered here? If so, please provide details of any anticipated one-off and on-going costs and burdens.

c) How might any negative impacts be alleviated?