On 26 November, with so much attention on the Autumn Budget 2025, you may have missed a major policy change in relation to cross-border VAT groups. If your business is VAT grouped in the UK but has an establishment located in an EU member state (‘an EU establishment’), you could potentially be owed millions in repayments of VAT that was overpaid as a result of previous accounting treatment.
What has changed?
According to HMRC’s policy paper Revenue and Customs Brief 7 (2025), UK VAT groups which include entities with EU establishments may now treat the EU establishment as part of the UK VAT group regardless of which EU member state that establishment is located in.
How does this differ from HMRC’s previous position?
UK law (as enacted in S. 43A VATA) has always treated overseas establishments of UK VAT grouped entities as part of the UK VAT group. To align UK rules with the Court of Justice of the European Union’s (CJEU) Skandia (C-7/13) judgement, HMRC adopted the so-called Skandia policy, effective 1 January 2016.
The Skandia policy meant that a UK VAT group excluded an EU establishment where:
• That EU establishment was a member of an EU VAT group; and
• The EU member state in which that establishment was VAT grouped applied an establishment only VAT grouping rule.
If you found that hard to read, now imagine applying it.
This brand new policy retires the Skandia policy and means that overseas establishments of UK VAT grouped entities are part of the UK VAT group wherever they are located, regardless of non-UK VAT groups and non-UK VAT grouping laws.
This is a policy reversal and not a change in legislation. It has no effective date and reflects HMRC’s view that this has always been correct (and the Skandia policy incorrect): in HMRC’s words, ‘a revised interpretation of existing UK VAT law’.
What actions should affected businesses take next?
VAT groups that have been incorrectly accounting for VAT on intra-entity supplies may now be able submit an error correction notification to reclaim overpaid VAT from HMRC. If so, it is important to act quickly to avoid VAT periods falling out of time for claim.
To discuss whether your VAT group is affected, and to receive specialist guidance on VAT compliance for your organisation, get in touch with Allon Greenstein or Luigi Lungarella, or send us an enquiry.
