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Changes to UK VAT accounting in relation to overseas establishments were highlighted in a recent Revenue & Customs Brief from HMRC.

This monthly update looks at these UK VAT changes, plus we cover a Tribunal case in relation to overseas VAT incurred, together with new announcements from HMRC and the European Commission.

Changes to VAT accounting
HMRC issued its Revenue & Customs Brief 18/2015 (which can be accessed herein which it confirmed the UK VAT changes resulting from the ECJ judgment in the case of Skandia America Corp (C-7/13). The background to the case was covered in our article of February 2015 which be accessed here.

In its recent brief, HMRC concluded that the Skandia judgment does not require any changes to the current UK VAT grouping rules. However, HMRC inform that changes will be required to UK VAT accounting. That is, VAT may become due where an overseas establishment of a UK entity is VAT-grouped in an EU Member State that operates similar 'establishment only' grouping provisions to Sweden.

The brief also provides details of which other EU Member States operate 'establishment only' VAT grouping where only the branch physically located in that EU Member State, as opposed to the whole legal entity (i.e. the company and its branches), can belong to the VAT group.

HMRC inform that a business must treat services provided to, or by, such overseas establishments as supplies made to or by another taxable person and account for UK VAT accordingly. No UK VAT changes are required if the only VAT grouping is of the UK establishment.

Businesses should ensure that their VAT accounting systems are updated for these changes, which should be applied to services performed on, or after, 1 January 2016. A business may choose to apply these changes to services performed earlier than this date, provided it does so consistently for all services and covering the establishments affected.

Recent case law
An appellant, Ppig Ltd, recovered input tax (VAT) on its UK VAT returns for business expenses incurred in other EU Member States. HMRC accepted that the expenses were legitimately incurred and the VAT recovery was a genuine mistake by Ppig Ltd. However, input tax (VAT) that had incorrectly been claimed had to be repaid to HMRC. Unfortunately, due to timing issues, Ppig Ltd was unable to recover a significant amount of the VAT assessed by HMRC through the EU VAT electronic refund scheme. The Tribunal agreed with HMRC's assertion that the VAT incurred by Ppig on such expenses in other EU Member States could not be considered as UK input tax (VAT) and the appeal was dismissed.

We find the error around this type of VAT recovery is quite a common occurrence by businesses and other organisations when we undertake VAT health check reviews, VAT audits on behalf of our accountancy clients and VAT due diligence work.

HMRC publications
HMRC also issued its Revenue and Customs Brief 17/2015 covering the deduction of VAT on pension fund management costs (please click here). Basically, HMRC has extended the transitional period for the use of the 70/30 split concession, used by employers operating defined benefit schemes, by 12 months to 31 December 2016 following the ECJ judgement in the case of PPG holdings BV (C-26/12). Further, HMRC still appear to insist that tripartite agreements will resolve the VAT recoverability issue, though there is still uncertainty around the benefits of tripartite agreements when taking a holistic approach across direct/indirect taxes.

For further information on the background to potential VAT refund opportunities for pension funds, please see our VAT article from April 2014.  

HMRC issued a guide explaining how to create a CSV file to submit EC Sales List ('ESL') declarations covering what file layout to use for an ESL CSV bulk upload, together with its advice on how to resolve problems with file upload failures. The guide can be accessed here 

European Commission publications
The European Commission has issued explanatory notes on the EU VAT place of supply rules for services connected with immovable property (i.e. land and property) that shall come into force in 2017. The notes can be accessed here

The explanatory notes provide background information and explanations on how EU VAT rules should be understood according to the European Commission. These can be a useful guidance tool when clarifying the practical implementation of the EU VAT rules on services connected with immovable property. However, these notes are not legally binding and do not prevent EU Tax Authorities adopting national guidance.

The European Commission has also issued the 2016 version of the Combined Nomenclature, which can be accessed here. The Combined Nomenclature sets out the general rules for the classification of goods to an eight-digit level and is updated on a yearly basis. The 2016 Combined Nomenclature replaces the 2015 version and contains all eight-digit tariff code changes effective from 1 January 2016. This publication covers all goods imported into, or exported from, the EU which must be classified for customs purposes.

Contact us

Should you wish further information on the above, please do not hesitate to contact Gary using the details outlined below.


Gary Moore
Direct line 0141 636 9353
Mobile 07812 061 582
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