Partnerships and VAT grouping: FTT decision

The FTT has construed the UK VAT grouping in rules in a way as to allow a controlling partnership to form a VAT group with the bodies that it controlled.

The FTT has adopted a conforming interpretation of the UK VAT grouping rules to allow grouping of a controlling partnership: Baillie Gifford v HMRC [2019] UKFTT 410. The decision indicates that a controlling partnership or individual should be entitled to join a VAT group with any bodies that it controls.

The decision may prove to be of largely historical significance given that the Finance Act 2019 contains provisions extending VAT grouping to individuals and partnerships that control the other bodies in a VAT group. However, until those provisions are brought into force, the decision is important in confirming the extension of the UK VAT grouping rules.


The 2015 decision of the ECJ in Larentia + Minerva (Case C-108/14) indicated that Member States may not restrict VAT grouping to entities having legal personality, unless it is justified by the prevention of abusive practices, tax evasion or avoidance. UK legislation in VATA 1994 s.43 limits VAT grouping to “bodies corporate” and, accordingly, HMRC consulted on an extension of the VAT grouping rules. This led to changes included in the Finance Act 2019 to allow individuals and partnerships to join a VAT group, provided that the non-corporate entity controls all of the members of the VAT group, from a date to be appointed.

In 2014, Baillie Gifford (BG) applied to form a VAT group with itself as the representative member under VATA 1994 s.43. HMRC refused the application on the basis that BG was a Scottish partnership and, therefore, not a “body corporate” as required by s.43. BG appealed, arguing that a conforming interpretation of the UK legislation was required to give effect to the ECJ decision in Larentia + Minerva.

Decision of the FTT

The FTT held that a conforming interpretation of s.43 in line with the ECJ decision in Larentia + Minerva was possible. The requirements of EU law could be read into the UK legislation in a way that "goes with the grain" of the UK VAT grouping provisions. This involved reading into s.43A wording to essentially deem certain individuals or partnerships to be treated as a company for the purposes of the eligibility criteria. This was consistent with the “pith and substance” of the eligibility conditions which was “control”.

However, the FTT suggested that a conforming interpretation had its limits. Whilst the VAT grouping rules could be construed to include within a VAT group a partnership controlling bodies corporate, by extending an existing deeming provision in s.43A(3) to apply to s.43 also, that deeming provision applies only to a controlling body and not to bodies that are controlled. Accordingly, the FTT considered that it would not be possible to extend a conforming interpretation to permit a partnership to be included in a VAT group where it was controlled by another entity (though this aspect of the decision must be obiter).

The FTT rejected limiting the conforming interpretation to Scottish partnerships, both because the legislation did not lend itself to such an interpretation and to avoid potentially infringing the principle of fiscal neutrality.

The FTT did, however, accept that any conforming interpretation needs to take into account “prevention of abuse” as a core objective of the VAT Directives.


The FTT noted that its approach was consistent with the provisions in FA 2019, which are still to be brought into force. As such, the decision is likely to be mostly limited to outstanding VAT grouping applications where the applicants are in a similar position to BG. However, it is currently unclear when the provisions of FA 2019 may be given effect and so, in the meantime, this decision will allow similarly placed partnerships to obtain VAT grouping in advance of those provisions coming into force.

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