Companies should review their positions and consider extending value-added tax (VAT) group registrations to include members of the corporate group that do not make “taxable” supplies. 

If a company makes “taxable” supplies in the United Kingdom worth in excess of £79,000 per annum, it must charge (and account to HM Revenue and Customs for) value-added tax (VAT) on the supplies it makes to its customers.  In principle, any supply of goods or services made in the United Kingdom for consideration is a “taxable” supply for VAT purposes, although various exemptions apply – including, for example, in the context of insurance transactions, financial services, supplies of land and supplies of investment-grade gold.

Companies under common control (for example, companies that are members of the same corporate group with a common parent) can elect to be treated as a single entity for VAT purposes (commonly referred to as a VAT group).  The principal beneficial effect of such an election is that supplies of goods and services made between the members of that group will no longer be subject to VAT – in effect, the supplies are disregarded on the basis that they take place within the single notional entity that now exists for VAT purposes and irrecoverable VAT costs can therefore be prevented.

In 2009, the European Commission challenged the provisions of the UK VAT rules that allow VAT groups to include companies that do not make “taxable” supplies.  The case was heard before the European Court of Justice (ECJ), which delivered its judgment on 25 April 2013 (Commission v UK (Case C-86/11)).

The ECJ’s Decision

In a robust and succinct judgment, the ECJ dismissed the Commission’s challenge and found in favour of the UK VAT rules.  The ECJ drew particular attention to the fact that one of the principles underpinning the facility for companies to join a VAT group is that it “contributes to administrative simplification both for the group and for the tax authorities”, and the ECJ could see no basis for limiting VAT group eligibility to entities that make only “taxable” supplies. 


The decision is a welcome result for taxpayers.  Its most obvious area of application is in the context of group holding companies – in practice, holding companies are usually included in a VAT group registration with their subsidiaries to ensure that any supplies of management services they make (e.g., accounting and administrative services) do not give rise to a VAT cost for the group. 

However, the decision is also of relevance to any member of a corporate group that does not make taxable supplies (e.g., a company making one of the exempt supplies mentioned previously).  The ECJ’s decision confirms that such a company will be entitled to join a VAT group that includes other members of its corporate group; accordingly, no VAT would then be chargeable on any transaction between it and the other members of the VAT group. 

In the light of the ECJ’s decision, companies should review their positions and consider extending VAT group registrations to include members of the corporate group that do not make “taxable” supplies.