23 November 2016

In the case of BMW(UK) Holdings Limited and Lloyds Banking Group PLC [2016] UKUT 434 (TCC), the UT has found that representative members of VAT Groups, rather than the members who made the supplies, have the right to claim VAT refunds even where the member has subsequently left the group.

The UT heard two separate appeals together. In each case, VAT had been overpaid for supplies made by companies who at the time had been members of a VAT Group. The companies had then left the VAT Groups before claims for a refund had been made.

The UT was asked to decide whether the refund should be paid to the representative member of the group or the company who had made the supply. At the First Tier Tribunal, both of these claims had been heard separately and conflicting decisions reached.

Finding in favour of the representative members, the UT held that supplies made whilst the member was still part of a group, could not be "retroactively unwound” from the VAT grouping rules. The UT gave several reasons in reaching this decision.

First, the UT found a principal purpose of the VAT grouping rules under European law was administrative simplification. Put simply, it provided HMRC with one principal point of contact for multiple entities in a single group. To disentangle each member’s VAT liabilities and claims for refunds when any one member departed the group ran contrary to this intended simplicity.

Second, the UT did not consider the role of the representative member as representing each of the individual members, but instead as representing the single taxable person of the VAT Group. Any change in the components of the group therefore had no effect on the right of the representative members for past transactions.

Third, on a correct reading of the legislation, the right to claim refunds only rested with the taxable person who was obliged to account for the tax and who would be the subject of any assessment for VAT. Since the individual members were not subject to such requirements they were precluded from making any claim.

Fourth, the UT disagreed with claims that restricting the right to claim refunds to a single representative would deny the other members their right under EU law to the repayment of wrongly levied tax (‘the San Giorgio principle’). Under the legislation, the rights of the group to claim a refund vested with the representative member. The members were nonetheless free to agree between themselves their rights as member and how the benefit of any VAT claims should be shared within the group.

This case provides helpful clarification on VAT grouping rules and addresses recent confusion around the application of grouping rules on the departure of members or degrouping. In particular, the UT’s decision serves as a reminder of the importance for VAT group members to agree in advance a clear mechanism for the treatment of VAT claims.

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Ian Carnochan

Ian Carnochan Partner

  • Tax
  • Corporate Tax
  • Real Estate Tax

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