A policy paper published on 14 January 2016 announced the launch of a review of VAT grouping provisions in the UK following the Larentia + Minerva and Marenave case and the Skandia case in the European Court of Justice (ECI).
Currently the UK permits a VAT group to be formed between two or more companies or limited liability partnerships if each body is established in the UK and they are under common control.
The Larentia + Minerva and Marenave decision of the ECJ in July 2015 was that member states may only restrict VAT grouping to legal persons if the restrictions are appropriate and necessary to prevent abuse, avoidance or evasion. The UK VAT law is to be amended as a result of this decision. The changes to UK VAT law are likely to include an extension of VAT grouping to non-corporate bodies and the introduction of new rules to determine close economic, financial and organizational links for corporate and non-corporate bodies to replace the current test based on control.
HMRC is consulting with business representatives to develop new ideas on VAT grouping and a formal written consultation will be launched in the spring of 2016. The formal consultation period will continue for twelve weeks.
