VAT Groups

In our last issue of Tax Insight we noted the threat by Customs & Excise to rewrite the rules on VAT groups. A recent judgment of the House of Lords suggests that Customs & Excise may be worrying unnecessarily. The existing law, as applied in an increasingly flexible manner by the Courts, is itself a powerful tool.

The Thorn case involved manipulation of the VAT rules relating both to the time of supply and to groups, in order to obtain an artificial VAT advantage. The two companies involved in this case were both in a VAT group. One of them, Thorn Materials, agreed to sell goods to another company in the group. 90% of the price was paid immediately and Thorn Materials lent the amount of that payment to the other company. Seven days later Thorn Materials left the VAT group and some time after that the delivery of goods was made to the other company and the balance of the price was paid.