Title: VAT Grouping: A Strategic Approach to Optimizing VAT Recovery in the UK and France
In the concluding episode of our series, we turn our attention to the United Kingdom and France, exploring the intricacies of VAT group and partially exempt businesses. We had the privilege of speaking with esteemed professionals Richard Woolich, Stuart Walsh, and Raphael Bera, who shed light on the potential benefits of VAT grouping in optimizing VAT recovery. Their insights provide invaluable guidance for businesses navigating the complex world of value-added tax.
VAT grouping is a mechanism that allows separate legal entities to be treated as a single taxable entity for VAT purposes. This arrangement can be particularly advantageous for businesses with multiple entities operating within the same corporate group. By forming a VAT group, these entities can consolidate their VAT liabilities and entitlements, potentially leading to improved VAT recovery.
Richard Woolich, a partner at DLA Piper, explains the concept further, stating, “VAT grouping is a useful tool for businesses that have a significant amount of intercompany transactions. It allows them to simplify their VAT compliance, as they only need to submit a single VAT return for the entire group.”
In the UK, VAT grouping is available to companies that are closely bound by financial, economic, and organizational links. Stuart Walsh, another partner at DLA Piper, highlights the benefits of VAT grouping in the UK, saying, “One of the main advantages is the ability to recover VAT on costs incurred by one group member but used by another. This can result in significant savings for businesses.”
France, on the other hand, has a slightly different approach to VAT grouping. Raphael Bera, a partner at DLA Piper France, explains, “In France, VAT grouping is based on the notion of financial, economic, and organizational integration. The objective is to treat the group as a single taxable person, simplifying VAT compliance and potentially improving VAT recovery.”
One key consideration when contemplating VAT grouping is the impact it may have on partially exempt businesses. Partial exemption occurs when a business makes both VAT taxable and VAT exempt supplies. In such cases, the business is only entitled to recover a portion of the VAT incurred on costs.
Woolich emphasizes the importance of understanding the interaction between VAT grouping and partial exemption, stating, “VAT grouping can have both positive and negative implications for partially exempt businesses. It is crucial to carefully analyze the impact on VAT recovery before deciding to form a VAT group.”
In the UK, the VAT grouping rules provide a partial exemption override, allowing the VAT group to recover VAT on costs that would otherwise be exempt. This can be advantageous for businesses with a significant proportion of exempt supplies.
Bera highlights the contrasting approach in France, where VAT grouping does not automatically override partial exemption. He advises, “In France, businesses should consider the impact of VAT grouping on their partial exemption recovery rates. It may be necessary to review and adjust the allocation of costs between the group members to optimize VAT recovery.”
It is worth noting that VAT grouping is not suitable for all businesses. The decision to form a VAT group should be based on a thorough analysis of the potential benefits and drawbacks. Seeking professional advice is essential to ensure compliance with local regulations and to maximize the advantages of VAT grouping.
In conclusion, VAT grouping can be a valuable tool for businesses operating in the UK and France. By consolidating their VAT liabilities and entitlements, businesses can simplify their VAT compliance and potentially improve VAT recovery. However, careful consideration should be given to the interaction between VAT grouping and partial exemption, as the impact on VAT recovery rates can vary between jurisdictions. With the guidance of experienced professionals, businesses can navigate the complexities of VAT grouping and make informed decisions to optimize their VAT recovery strategies.
Source: DLA Piper
