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HMRC internal manual

VAT Groups

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HM Revenue & Customs
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VAT avoidance - groups of companies statement of practice on the new Schedule 9A VATA 1994: conditions for the issue of a direction under the new Schedule 9A: commercial transactions

Even where a tax advantage arises, Schedule 9A will not apply where the relevant event was carried through for a commercial purpose or purposes unconnected with the avoidance of VAT (Schedule 9A, paragraph 2). This recognises the fact that in the vast majority of cases businesses are moved into and out of VAT groups for reasons which have no avoidance motivation whatsoever (e.g. a relevant event might be motivated solely for administration reasons following a change of ownership of a business). The example given at VGROUPS08700 illustrates arrangements, which Customs would accept as being motivated by a genuine commercial purpose.

However, it is important to realise that where, in addition to an acceptable commercial purpose, Customs also identify other main purposes indicating VAT avoidance, they will seek to use their powers to nullify the VAT advantage derived. Examples of mixed motive transactions are given at VGROUPS08750 and VGROUPS08800 along with an indication of how Customs would view the transactions in question. While the examples are rather complex, they are intended to illustrate the basic point that no direction will be issued where Customs are satisfied that it is not one of the main purposes of the arrangement to gain a VAT advantage by having a supply disregarded in a VAT group while obtaining input tax recovery in respect of it.

In deciding issues concerning commercial purpose, Customs would be prepared to consider the term in its broadest sense where the context of any particular case allowed. The taxable trading arm of a charity, for example, would not be denied a claim to commercial purpose merely because it is part of a non-profit making body.