In our article VAT group registration? Urgent action required!
, we highlighted the potentially damaging implications of the European Court’s judgment in the Skandia case. Broadly, if HMRC implement the judgment in the UK, transactions between a head office and its branch could become subject to VAT, where one or the other is a member of a VAT group registration. VAT groups that are not able to reclaim their VAT in full, such as many of those within the financial services sector, could suffer increased irrecoverable VAT costs.
HMRC has announced that they are carefully considering the impact of the Skandia case and will provide a further update in due course, although the timing of this is unknown. HMRC has stated that, in the meantime, businesses should continue to follow the existing UK VAT rules.
The fact remains that a change to UK VAT policy seems likely and, therefore, businesses should review their position now, so that they are prepared.
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