HMRC’s VAT Grouping Policy Revision: Boosting Cross-Border Efficiency in 2026
By Nicholas Thomson, Senior Accountant at MM Business and Tax Consultancy
In a post-Brexit bid to attract international investment, HMRC has revised its VAT grouping policy, now treating overseas establishments as part of UK VAT groups. Announced in late 2025 via Revenue and Customs Brief 7, this shift takes full effect in 2026, reversing EU-influenced restrictions. Nicholas Thomson, senior accountant at MM Business and Tax Consultancy, comments, “This policy reset simplifies cross-border operations, reducing VAT barriers and enhancing reclaims.” This article examines the background, changes, and business benefits, leveraging MM Business and Tax Consultancy‘s expertise in international tax.
Background and the Shift from Skandia Policy
The previous policy stemmed from the 2014 CJEU Skandia judgment, which treated EU branches of UK-grouped entities as separate for VAT, imposing VAT on intra-group supplies. Post-Brexit, the UK is no longer bound by this, prompting HMRC’s overhaul in November 2025. Now, overseas branches—regardless of location—are considered group members, disregarding supplies between them and the UK entity.
Nicholas Thomson of MM Business and Tax Consultancy explains, “The old rules created ‘VAT leakage’ on services like IT support from EU branches. MM Business and Tax Consultancy has helped clients recover millions in such scenarios.” The change aligns with global practices, making the UK more competitive.
Effective from 26 November 2025, it applies prospectively and allows retrospective reclaims where overpaid VAT occurred under the prior policy.
Key Changes and Treatment of Overseas Establishments
Under the new rules, an overseas establishment of a UK VAT-grouped business is fully integrated into the group. This means no VAT on transactions between the UK head office and foreign branches, simplifying accounting and improving cash flow. For example, management fees or shared services are now VAT-free within the group.
The policy extends to non-EU locations, but the EU focus addresses post-Brexit frictions. Businesses must ensure “control” criteria are met, such as ownership or management links. According to Nicholas Thomson, senior accountant at MM Business and Tax Consultancy, “This inclusion eases partial exemption calculations. At MM Business and Tax Consultancy, we review group structures to maximize benefits.”
No legislative amendment was needed; it’s a policy reinterpretation, but HMRC guidance updates VAT manuals accordingly.
Implications for Multinational Businesses
Multinationals with UK operations stand to gain significantly, with reduced administrative burdens and VAT costs. Input tax recovery improves, as group-wide supplies are ignored, potentially saving thousands annually. “Foreign investors eyeing the UK will find this attractive, avoiding the ‘looping’ issues of old,” notes Nicholas Thomson from MM Business and Tax Consultancy.
However, risks include increased HMRC scrutiny on group eligibility. Businesses with exempt activities must recalculate recovery rates, and those with EU branches should monitor local VAT implications. MM Business and Tax Consultancy recommends comprehensive audits to identify reclaim opportunities, with four-year caps on retrospectives.
The policy complements other 2026 reforms, like enhanced third-party data use by HMRC, heightening compliance needs.
Actions and Strategies for Businesses
Companies should review VAT returns for overpayments and file protective claims. Update internal systems to reflect the new treatment, and consider regrouping if beneficial. Nicholas Thomson advises, “Consult experts early. Our team at MM Business and Tax Consultancy offers end-to-end support, from policy analysis to reclaim submissions.”
HMRC encourages dialogue for complex cases, but professional advice ensures accuracy. This revision positions the UK as a hub for global business, with long-term economic boosts.
In closing, the VAT grouping overhaul is a strategic win for efficiency. With guidance from MM Business and Tax Consultancy, firms can harness its full potential. Contact Nicholas Thomson for insights tailored to your operations.
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