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HMRC internal manual

VAT Groups

General principles of VAT group treatment: supplies between group members - imported intra-group supplies

VAT Act 1994, section 43 subsections (2A) to (2E) restrict the effects of the disregard provision applied to intra-group supplies by subsection (1)(a). The legislation was introduced to combat a VAT avoidance scheme, which was exploited by partly exempt VAT groups to avoid being charged VAT on certain services. They did this by arranging for a VAT group member “belonging” abroad (i.e. having an overseas establishment) to purchase the services and then supply them on to the UK user within the same VAT group.

Simply put, the effect of these provisions is that, under certain circumstances, supplies of services between members of a VAT group will not be disregarded under section 43(1)(a) but will be subject to a reverse charge in the hands of the representative member.

The charge applies when the overseas member has received VATable services supplied where received (reverse charge services) that are reflected in an onward supply of such services to a UK user within the VAT group. Up to 31 December 2009 reverse charge services were listed in Schedule 5 of the Act; since then they are all services to businesses which are not specifically excepted in Schedule 4A Parts 1 and 2. You can find guidance on the changes to the place of supply of services rules effective from 1 January 2010 in VATPOSS.