The UK’s approach to VAT groupings has undergone a significant transformation, marking a decisive departure from EU-derived case law and adopting a more flexible framework to attract global capital.
The policy shift, confirmed by HMRC in Revenue and Customs Brief 7 (2025), introduces a revamped stance on VAT groupings that treats overseas establishments as part of a UK VAT group, simplifying cross-border VAT processes for multinational businesses.
This move is strategically designed to make the UK more competitive in the global investment landscape, particularly as the country seeks to regain its footing post-Brexit.
By resetting VAT group rules and dismantling the restrictive interpretations that were previously imported from EU jurisprudence – specifically cases like Skandia and Danske Bank – HMRC has signalled its intent to create a more commercially aligned framework for multinational groups.
The concept of VAT grouping has long been a tool for simplifying VAT obligations for related entities, enabling them to operate as a single taxable person.
However, the EU’s application of case law, particularly the Skandia and Danske Bank decisions, created complications by treating branches and head offices as separate VAT entities when one was within the VAT group and the other was not.
This led to a fragmented VAT system, especially in the financial services sector and for global treasury structures, where internal VAT charges were applied inconsistently.
Although the UK’s exit from the EU created room for change, HMRC had continued to apply the same restrictive interpretation.
With this new shift, however, the UK has drawn a definitive line under these EU-driven constraints, signalling a pragmatic approach that aligns more closely with business needs in the post-Brexit landscape.
VAT grouping rules can have a significant impact on multinational structures, particularly where overseas branches, internal services and cross-border supplies are involved.
If you need guidance on the changes to VAT groupings in the UK, please get in touch with our VAT Partner, Jas Dhillon (jaspaldhillon@lubbockfine.co.uk) or VAT Director, Sharon Parker (sharonparker@lubbockfine.co.uk).
