Dollar Financial UK Limited (the taxpayer) has lost their case at the Upper Tribunal (UT) concerning whether they could back-date an overseas company joining their UK VAT group.  The taxpayer had contended that their US based parent had a fixed establishment in the UK for VAT purposes and therefore when management charges from the US parent to the UK subsidiary were made then these were subject to UK VAT.  The taxpayer hoped by having the US parent join the VAT group that the UK subsidiary taxpayer was the representative member of then supplies from the US parent to the taxpayer would then be ignored for VAT purposes as supplies within a VAT group.

Previously the US parent had made management charges to the UK taxpayer who had then accounted for VAT on the services, using the reverse charge mechanism, and as an exempt or partially exempt trader was unable to fully reclaim the VAT incurred.  Where the management charges were not subject to the reverse charge, as they wouldn’t be if the US parent had a fixed establishment in the UK and was a member of the VAT group then a saving of over £2m could be made by the taxpayer for just under a year of trading.

HMRC had declined to allow the backdating of the US parent joining the VAT group holding that the US parent didn’t have a fixed establishment in the UK and that HMRC only allow the backdating of group registrations by 30 days in exceptional circumstances.  The taxpayer appealed to the First-tier Tribunal (FTT) who held that under the relevant legislation there is no requirement for HMRC to allow the backdating of registrations and struck the case out on the grounds that there was no appealable decision.

The taxpayer appealed to the UT who have found that the FTT were correct to strike the case out as the legislation doesn’t require HMRC to allow the backdating of members joining a VAT group and so the decision wasn’t appealable to the FTT.  The UT noted that a judicial review of the issue was possible but under the grounds submitted to the FTT it had to strike the case out.

The decision can be found at: DOLLAR FINANCIAL UK LTD v THE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMS [2023] UKUT 00256 (TCC) – GOV.UK (www.gov.uk)

This is a rather inflexible result from the UT but as the legislation doesn’t allow for the backdating of joining VAT groups then it hands were tied.

Please contact if you have any questions on VAT and VAT groups.  The above case highlights that considering VAT early on when planning transactions can lead to substantial savings.