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The European Commission has formally requested the UK and seven other member states to amend their legislation with regard to the application of their VAT grouping schemes.
The commission has begun infringement proceedings on the basis that the UK allows non-taxable persons to be members of VAT groups.
If the UK fails to comply within two months, the EC may refer the matter to the European Court of Justice.
This could prove difficult for non-business organisations and holding companies that do not carry on business activity: if the legislation is amended as requested they would be excluded from VAT grouping and may have to leave current VAT groups.
According to Baker Tilly’s George Bull, ‘This could affect some sectors: for example, the further education and charitable sectors, as they may use VAT grouping to obtain increased VAT efficiencies’.
Mr Bull suggested that firms and organisations should ‘review their group structures in light of this announcement and consider how to minimise VAT losses’.
