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HMRC internal manual

VAT Groups

VAT avoidance - groups of companies statement of practice on the new Schedule 9A VATA 1994: time limit on directions

A direction cannot be given more than six years after the relevant event, or six years after the entitlement to input tax which gave rise to the tax advantage, whichever is the later (Schedule 9A, paragraph 4(1).

A direction cannot be given unless the relevant event occurs on or after 29 November 1995 (Schedule 9A, paragraph 4(2).

However, where a direction is appropriate, it can rely on assumptions about transactions made before that date without any limit (Schedule 9A, paragraph 4(3)) (but see ).

Right of appeal

Taxpayers have full rights of appeal to the VAT tribunal against the issue by Customs of any direction or assessments issued under these provisions. The tribunal is entitled to consider all relevant facts and decide whether or not the conditions had been fulfilled. In addition the tribunal will be able to decide whether there had been a genuine commercial purpose.

Powers of direction - how far back will Customs go?

Customs will not seek application of any direction from a date earlier than that required to nullify the tax advantage derived from the relevant event. Usually this will be the first day of the prescribed accounting period in which the scheme commences or the relevant event occurs (whichever is the earlier). In calculating an assessment for unpaid tax according to assumptions applying to periods prior to issue of the direction, only those supplies relevant to delivery of the tax advantage will be taken into account. The assessment amount itself will be capped so that it does not exceed what, in the judgement of Customs is the actual revenue loss arising (Schedule 9A, paragraphs 6(3) and 6(4)). This means that input tax that would have been deductible on the basis of the assumptions in the direction can be taken into account in appropriate cases. All other supplies made by the parties involved will be unaffected so there will be no need for any retrospective VAT accounting adjustment in their regard. In short, the intention is that the provisions will be applied so as not to make the actions of Customs disproportionate to the mischief involved.

Nevertheless, Customs will apply these provisions vigorously where an attempt to avoid VAT is made (see also VGROUPS08650 on responsibility for authorising directions).

Is a grouping or de-grouping direction irrevocable?

Once the particular tax advantage of the scheme targeted has been corrected satisfactorily, Customs will consider any subsequent application to join or leave a group subject to their normal powers of discretion in such matters.