UK Budget 2025: HMRC Eases VAT Rules for UK Businesses with EU Branches

The UK Budget 2025 has delivered a significant VAT change for UK businesses operating EU branches. HMRC has confirmed a reversal of its previous position following the Skandia judgment, easing the VAT treatment of intra-group services.

From 26 November 2025, UK VAT groups will no longer be required to apply the reverse charge on services supplied between a UK VAT group and its EU establishments. This marks a welcome simplification for groups that have faced increased VAT costs and compliance complexity since Brexit.

Importantly, HMRC has also confirmed that businesses may be able to reclaim UK VAT paid under the old reverse charge rules for the past four years, subject to the usual claim conditions. This creates a valuable opportunity for affected businesses to review historic transactions and identify potential recoveries.

The change is particularly beneficial for financial services businesses and partially exempt groups, where irrecoverable VAT can represent a significant cost.

However, businesses should proceed carefully. HMRC has made clear that anti-avoidance provisions, including section 43(2A) of the VAT Act 1994, will continue to apply where arrangements are considered abusive.

UK businesses with EU branches should review their VAT position now to ensure compliance and maximise potential savings as the new rules come into effect.