Revised HMRC guidance on intra-group reverse charge and revenue protection powers

Following an announcement at Budget 2018, HMRC has revised existing guidance for VAT groups to clarify which overseas services can be classified as bought-in services for the purposes of “disapplying” the VAT grouping rules and the use of its revenue protection powers to remove group members.

In certain circumstances a reverse charge applies to intra-group supplies made by non-UK suppliers to UK VAT group members. Where it applies, the charge is on the whole of the intra-group supply, but can be reduced to the value of the bought-in services used in making the onward supply. Bought-in services include agency and contract staff in certain circumstances, telecoms, legal and professional services, IT costs, consultancies and marketing services.

Guidance is also given on the tax authority's power to terminate group treatment. Specifically, the guidance says that the tax authority will exercise these powers where it considers that revenue loss does not follow the normal operation of grouping or there is a significant VAT advantage. For example, where the parties' essential aim in VAT grouping a particular company is to disregard supplies from overseas establishments of that company, or where the supplies in the UK between the UK establishment and other VAT group companies are disproportionately small compared to the supplies between an overseas establishment and other VAT group companies.

DLA Piper Comment: The new guidance is worth a read for UK businesses which buy in goods and services into UK groups from outside the UK; the new guidance also deals with the impact of the Skandia case (C-7/13).