UK Overhauls VAT Grouping Rules in Post-Brexit Shift
HMRC has announced a significant overhaul of the UK VAT grouping rules, marking a decisive move away from restrictive EU case law and signalling a more flexible, UK-centric approach to VAT policy.
Under the revised policy, overseas establishments may now be permitted to join UK VAT groups, a change that could substantially reduce irrecoverable VAT and cross-border VAT inefficiencies for international businesses operating in the UK.
Key Changes to VAT Grouping
Historically, UK VAT grouping was heavily influenced by EU jurisprudence, which limited the ability of overseas entities or establishments to be included within a UK VAT group. HMRC has now confirmed that it will no longer apply these restrictive interpretations.
The updated approach allows HMRC to consider VAT grouping applications involving overseas establishments on a case-by-case basis, focusing on commercial reality rather than rigid structural tests.
Increased HMRC Powers to Refuse Grouping
Alongside this liberalisation, HMRC has expanded powers to refuse or remove VAT grouping where it believes the arrangement could:
Create a risk to VAT revenue
Lead to tax avoidance or distortion
Produce outcomes inconsistent with the purpose of VAT grouping
This means that while opportunities have increased, applications will need to be carefully structured and commercially justifiable.
Opportunity to Revisit Historic VAT Positions
Importantly, businesses may now be able to revisit prior VAT periods where VAT grouping was previously denied under the old rules. In some cases, this could give rise to claims for overpaid VAT, subject to statutory time limits and evidential requirements.
Groups with cross-border supply chains, shared services, or centralised procurement models may be particularly well placed to benefit.
Attracting Global Investment
The changes form part of a broader post-Brexit strategy to make the UK VAT regime more attractive to international investors by aligning VAT treatment more closely with commercial substance.
By distancing itself from EU VAT jurisprudence, the UK is signalling a willingness to develop independent, pragmatic VAT policy that supports international business while retaining safeguards for the Exchequer.
What Should Businesses Do Now?
Businesses with UK and overseas operations should consider:
Reviewing existing VAT group structures
Assessing whether overseas establishments could now be included
Identifying historic VAT leakage or reclaim opportunities
Preparing for increased HMRC scrutiny where grouping could be seen as distortive
Professional advice is strongly recommended before making claims or restructuring VAT groups, given HMRC’s enhanced refusal powers.
How 4 Eyes Ltd Can Help
4 Eyes Ltd advises UK and international businesses on complex VAT grouping, cross-border VAT, and post-Brexit VAT structuring.
We can support you by:
Assessing eligibility for UK VAT grouping, including the inclusion of overseas establishments under HMRC’s revised approach
Identifying historic VAT leakage and advising on potential claims for overpaid VAT, including interaction with statutory time limits
Structuring VAT groups to reflect commercial reality while managing HMRC’s expanded powers to refuse or remove grouping
Preparing and supporting VAT grouping applications, including technical analysis and engagement with HMRC
Advising multinational groups on shared services, cost recharges, and supply chain VAT efficiency following the policy change
Through our established EU network partners, we also assist with local VAT formalities and cross-border coordination where overseas establishments are involved.
If your business has UK and overseas operations, now is an opportune time to review your VAT grouping position in light of HMRC’s new guidance.
For further information or to discuss how these changes may affect your business, please contact 4 Eyes Ltd.