VAT Consultation papers out – VAT Grouping: VAT Recovery Rules for Government Bodies inc NHS

The end of August saw two consultation papers published on quite key areas of VAT complexity. Both spring from ideas presented by the Office of Tax Simplification when it undertook its review into VAT.

1. VAT Grouping:

This consultation invites responses before the 20^th November 2020 and look at three key areas:

• The establishment process
• Compulsory VAT Grouping
• Grouping eligibility criteria – including limited liability partnerships

The HM Treasury policy paper is here

Establishment:

This is a condition that requires – currently – for potential members of any UK VAT Group to be “established” or have a “fixed establishment” here in the UK. This leads to the need to have more than just a “brass plate” in the UK to qualify. The paper also considers the implications from the Skandia case in the European Court where a UK established entity was VAT grouped in other EU member states.

Compulsory VAT Grouping:

Currently VAT Grouping is an option here in the VAT – often a useful aspect of VAT management across partially exemption corporate groups. The paper presents a range of questions as to the impact should VAT Grouping become compulsory for organisations in certain sectors. There is also under consideration an “all in or all out” option where if it is adopted for one entity, then all related entities that meet the common control criteria would be included in the VAT Group.

Eligibility Criteria:

Entities such as limited liability partnerships (LPs) and Scottish limited partnerships (SLPs) would not be allowed to join a VAT Group outside of the fact that HMRC has an extra statutory concession to allow them membership. There have been recent legal changes in respect of SLPs and the paper looks to establish the level of engagement of these partnership bodies in VAT Groups, the commercial rationale for that membership and views on changes to test and eligibility criteria.

2. Section 41 Bodies – VAT Recovery rules:

A complex area of VAT interpretations on what can and cannot be recovered by Government Departments, NHS Trusts and other designated bodies under section 41 of the VATA 1994 – which includes the Devolved Administrations. The identification of what can be recovered by these bodies has in itself created a VAT industry in its own right to assist such bodies with correctly identifying “missed” VAT on costs. It would seem that the difficulties in administering the VAT recovery within such government departments and the NHS has contributed to the suggestions in this policy paper to simplify the VAT recovery rules but as our longer analysis of this potential seismic change discusses any change brings into focus fundamental funding questions for government and the management of public budgets, particularly across devolved administrations into Wales and Scotland. For a more detailed review you can access our blog piece on this issue here.

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