Autumn Budget 2025 revealed an interesting development for the VAT grouping space. HMRC have issued Business Brief 7 (2025) - Revised VAT grouping rules and the Skandia judgment - setting out their revised position regarding intra-entity services following the CJEU’s decision in Skandia.
What’s changing?
Previously, businesses were required to account for UK VAT under the reverse charge on some supplies of intra-entity (e.g. branch to head office) services between UK VAT group members and their overseas EU establishments (if the EU Member State had implemented the Skandia decision).
HMRC have now reversed their position with retrospective effect from 26 November 2025. An overseas establishment of a UK VAT-grouped entity should now be treated as part of the UK VAT group, even if the relevant EU Member State has implemented Skandia so does not operate ‘whole entity’ VAT grouping.
This means that reverse charged VAT is not due in the UK on recharges between the two establishments.
Given the recent guidance published by the Irish Revenue implementing Skandia, this is an example of the UK taking a different approach post‑Brexit.
Impact for businesses
- From 26 November 2025, businesses should not apply the reverse charge to intra-VAT group services between a UK VAT group and its EU establishments;
- Critically, HMRC are inviting claims to be made by taxpayers if they have accounted for UK VAT under the reverse charge mechanism (in line with the old guidance) in the past four years; and
- However, due consideration should still be given to the anti-avoidance provisions in section 43(2A) of the VAT Act 1994.
What this means
HMRC’s invitation for claims to be made by taxpayers who previously accounted for VAT under the reverse charge mechanism provides a potential opportunity for financial services and other partially exempt groups to claim overpaid VAT.
Please reach out to your normal KPMG in the UK contact if you would like to discuss whether you might have a valid claim.
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