HMRC has published a response to its consultation, ‘Scope of VAT Grouping’, looking at whether changes should be made to the rules on forming a VAT group should be changed following European Court decisions.

Currently, the UK restricts VAT Groups to corporate bodies, such as private companies, public companies and LLPs.

A control test applies which ensures that the groups are closely bound by financial, economic and organisational links.

Following the decisions of the Court of Justice of the European Union (CJEU) in Larentia + Minerva and Marenave (C-108/14 and C109/14) and Skandia America Corporation (C-7/13), the HMRC published a Consultation, in December 2016, which looked at the following:

  • Extending eligibility for a VAT group
  • Understanding whether changes are required to help deal with the fall out of the Skandia case.
  • Whether any changes are required for the Cost Sharing Exemption (CSE).


  • The CJEU, in Larentia + Minerva and Marenave, found that VAT Grouping could not be restricted based on legal entity. This means the UK approach to VAT Grouping, in that it can only apply to corporate bodies is inconsistent with EU law.
  • The government will continue to assess how to extend the scope of grouping:
  • Joint and several liability will remain.
  • Businesses with exempt supplies will not be excluded but further research is needed to understand the effect on UK revenue.
  • The responses to the consultation had no real consensus as to how to introduce an alternative test for demonstrating financial, economic and organisational links. HMRC will continue to investigate alternatives.

Overseas group members

  • The decision of the CJEU in Skandia found that an EU Member State could restrict VAT Groups to entities established in that Member State, a so called ‘establishment only’ policy. This would make supplies between an overseas branch to head office, in those Member States, Vatable.
  • The UK allows overseas members to join UK VAT Groups and those same supplies would have been outside scope.
  • The decision means that where the head office is based in a country which has an ‘establishment only’ policy, the other fixed establishments will be separate taxable persons for UK VAT purposes as well.
  • From 1 January 2016, the UK introduced a rule that taxpayers had to assess the VAT position correctly based on whether the head office belonged to an establishment only Member State.
  • Following the responses to the consultation, HMRC have simply said that it “remains the responsibility of individual businesses to adhere to local VAT group rules”. In effect, there appears to be no further change on the horizon.

Cost Sharing Exemption

  • It is possible for independent entities (members) to form a cost sharing group, whereby a single additional entity will deal with administration of all members centrally and supplies to those members will be outside scope of VAT.
  • This CSE is available to entities who make exempt supplies in the public interest. It is designed to help ensure that they do not have to pay irrecoverable VAT on administrative services they receive.
  • The responses indicated that CSEs should be kept separate from VAT Grouping and HMRC have agreed that no changes should be made.


VAT Groups

Costs sharing exemption  

Scope of VAT Grouping: consultation

External link

Consultation and response can be found here.


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