The Government published a Summary of Responses following its Consultation on whether to make changes to UK VAT grouping, following the decisions of the Court of Justice of the European Union (CJEU) in Larentia + Minerva and Marenave (C-108/14 and C-109/14) and Skandia America Corporation (C-7/13).

The main focus of the consultation was to review:

• options around eligibility requirements for VAT group registration
• the impact of policy changes following the CJEU decision in Skandia

The Government was also interested in views about the interaction between VAT grouping and cost sharing provisions.

CTG’s response to the consultation did not comment on which kinds of entities ought not to be allowed to group-register under the proposed changes, but made it clear that we were interested in ensuring that charities had the widest possible rights to take advantage of the VAT grouping provisions. In particular, we requested a broadening of the entity criterion to include charity trusts and unincorporated associations, but whereby private assets of trustees are not included in the liability net. We also suggested that the current eligibility test be preserved in its entirety, with a potential extra permissive criteria reflecting the current one, but without limiting members to corporate bodies.

In its response the Government recognised that any widening of grouping will come with a revenue cost unless it excludes businesses that make exempt supplies. This was not something that the Government was planning to do, but any potential change would have to be assessed to fully understand the effect on UK revenue. Whilst the Government agreed that there may be implications with joint and several liability for certain entities, the Government had made no immediate plans to make any changes to joint and several liability rules.

The Government recognised there are various views on the extent to which the Larentia & Minerva and Marenave CJEU judgment impacts VAT grouping structures. HMRC acknowledged what respondents had said, and now have a greater understanding of which entities could benefit from broadening grouping eligibility. All the above factors must be considered further before the Government can make any decision on the future of UK VAT grouping. The Government acknowledged respondent’s comments on the clarity of guidance on VAT group eligibility for certain types of partnerships, and intended to clarify its current approach through improved guidance and a policy paper.

Next Steps

Government will continue to look at the scope of VAT grouping, the issues stakeholders have raised and the impact of any potential changes, including in the context of Brexit. HMRC intends to discuss its interim views with the Joint VAT Consultative Committee [JVCC] (at which CTG is represented through its Technical Adviser, Graham Elliott) and other invited representative bodies.  In the meantime, and in response to concerns raised during the consultation process, HMRC will clarify its current approach to certain types of partnerships through a policy paper and clearer guidance for business.