VAT grouping reform: practical benefits for financial institutions and insurers
Robin Prince · Posted on: December 1st 2025 · read
HMRC has announced a major change to the UK VAT treatment of intra-group supplies, delivering clarity and potential cost savings for financial institutions and insurers.
Revenue & Customs Brief 7 (2025) confirms that the CJEU’s Skandia judgment (C-7/13) will no longer apply in the UK.
This reform is particularly relevant for businesses operating cross-border branch structures. For many, it reduces future costs and may allow recovery of VAT previously accounted for on internal recharges
Why this matters
Previously, the CJEU judgments in Skandia and Danske Bank meant UK reverse charge VAT was due on cost allocations from establishments in certain EU countries where either establishment was part of a VAT group.
HMRC’s announcement restores the principle that a VAT group operates as a single taxable person, adopting full-entity VAT grouping.
Key implications:
No VAT on internal recharges within a UK VAT group, including overseas establishments.
Immediate effect for both future transactions and historical periods.
Opportunity for retrospective claims for VAT previously overpaid, subject to normal time limits and compliance conditions.
Businesses must, however, be mindful of S43(2A) of the VAT Act 1994, which imposes anti-avoidance restrictions on “bought-in services” allocated by overseas members of a group. Any retrospective claims or future internal recharge arrangements should be reviewed in light of this legislation.
How this differs from HMRC’s previous approach
This marks a clear departure from HMRC’s earlier stance in the FTT case of Barclays Service Corp, where HMRC attempted to argue for an “establishment-only” approach based on Danske Bank principles. That approach would have limited VAT grouping to UK-established entities.
By adopting full-entity VAT grouping, HMRC now treats all members of a UK VAT group, including overseas establishments, as part of a single taxable person. This:
- Eliminates the need to charge VAT on internal recharges.
- Aligns with the core principle of VAT grouping.
- Provides certainty for businesses operating cross-border structures.
Our view
This clarification offers meaningful relief for businesses within cross-border VAT groups. To maximise benefits, impacted businesses should act promptly:
- Review historic VAT treatment for potential error-correction claims.
- Update internal recharge processes to reflect the new rules.
- Ensure compliance with S43(2A) anti-avoidance provisions.
Act quickly to secure operational and financial advantages from this important development.
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