VAT Groups – What are they and how do they work?
A VAT group consists of two or more ‘bodies corporate’ that are treated as a single company for VAT purposes. Bodies will be eligible to create/join a VAT group if:
- one of them controls each of the others;
- one person (whether a body corporate or and individual) controls all of them; or
- two or more individuals carrying on a business in partnership control all of them,
and each of the bodies is established or has a fixed establishment in the UK. In addition to the above, there are also some very specific eligibility rules and anti-avoidance provisions that must be considered.
There are many advantages and potentially disadvantages to forming or joining a VAT group and these should be considered on a case-by-case basis as some may or may not apply to specific business circumstances. The main and, arguably, most attractive affect of VAT group registration is that all members are treated as a single taxable person, meaning that any supplies made between group members are disregarded for VAT i.e. no VAT is charged. The negative impact of this, however, is that all group members are jointly and severally liable for any potential VAT errors or misdemeanours.
VAT groups are often used to centralise the VAT affairs of all members, as it is only the ‘representative member’ that is responsible for submitting a single group VAT return. Again, depending on the size and complexity of the group, some businesses may view this as a negative impact, as a large single return could increase the risk of error on which penalties, if applicable, would also be larger.
There are separate applications that must be completed and submitted to HMRC in respect of creating a new VAT group or joining an existing group, and HMRC have the power to refuse an application if they feel it is necessary to do so for the protection of the revenue. There is an appeal process available for such rejections, but this emphasises our point that VAT grouping is not straightforward and requires very detailed considerations before an application is made.
Please also note that HMRC recently updated their guidance (found here) to include information about legislative changes to the eligibility criteria to include certain non-corporate entities, which are individuals, partnerships and Scottish partnerships. These changes took effect from 1 November 2019.
Centurion are here to help you when VAT gets complicated. Thinking about how best to structure your business from the VAT perspective is one such area of potential complication. If you would like more information about VAT groups or to discuss how these rules may apply to your business, please contact a member of the Centurion VAT team at email@example.com