This article highlights the advantages, disadvantages, and practical implications of forming a VAT group.
Two or more companies or limited liability partnerships (“corporate bodies”) can register as a single taxable person for VAT if:
- each has its principal/registered office in the UK, and
- they are under common control.
The Implications of VAT Grouping
There are a number of implications of VAT Grouping, both advantages & disadvantages, along with some practical points which may be either advantages or disadvantages in the context of your operational setup.
- The ‘Representative Member’ (a nominated ‘lead’ company) accounts for any tax due on supplies made by the group to third parties outside the group on a single VAT return. This can be helpful where accounting is centralised. There may also be disadvantages to this – e.g. where accounts departments are disparate, filing deadlines may be more difficult to meet
- The group is treated as a single taxable person and therefore it is not necessary to account for VAT on goods or services supplied between group members. This will be advantageous as it means there is no need for VAT on invoices for these supplies
- Invoicing to Accounts Payable is potentially more straightforward, where suppliers can invoice the wrong company – as long as the companies are in the same VAT group, the VAT is recoverable and there is not the same need to ensure correct invoicing/addressing simply to ensure VAT is recovered through the correct VAT registration
- Any poor compliance history of previous VAT registrations (and the VAT registration numbers themselves) will end with the closure of their individual VAT registrations – potentially ‘wiping the slate clean’
- VAT grouping brings joint & several liability for VAT due on the Group VAT return
- The good compliance history of previous VAT registrations (and the VAT registration numbers themselves) will end with the closure of their individual VAT registrations
- Any approvals or agreements reached with HMRC under the old VAT registration will strictly end, though it may be possible to carry those forward. That may mean that any existing special partial exemption method would be lost – though that may also be regarded as an opportunity – to agree a more suitable method
- Fixed financial limits in VAT regulations apply to each VAT registration number so aggregation to a group may not be helpful, for example;
- For voluntary disclosures, the £10,000 limit for corrections to be disclosed on the next VAT return will cover a VAT group declaring more VAT – with more scope for error
- The Payments on Account threshold of £2.3m net VAT per year will apply to the group as a whole and not the individual members
- The partial exemption annual deminimis limit is £7,500 for a VAT group, so by aggregating, further £7,500 ‘allowances’ for individual companies are forgone, and
- Default surcharges for late submission/payment may be calculated on larger sums, bringing more cost risk if net tax payable is high
- A new VAT registration number will be required for the group. Although not necessarily a major issue, any stationery, letters and similar correspondence that carry the original VAT numbers would need to be amended to reflect the new VAT registration number. It is, however, possible to give a single undertaking to HMRC to declare any VAT due under old registration number stationery under the new registration – useful to allow the exhaustion of existing stocks
- The online process will be ‘driven’ from one seat – this would include submission and payment of a single aggregated VAT return but also the submission of any other data required by HMRC – e.g. Intrastat and EC Sales Lists
- A new EORI number to deal with imports and exports will be required for a new VAT group
- VAT inspections will only be required to one VAT number, but they may be more detailed as the returns will be more complex given the consolidated nature. The larger the VAT grouped-business, the more likely that VAT assurance visits will be carried out by the Large Trader team in HMRC, potentially meaning a more systematic approach to assurance, and
- There are detailed rules and anti-avoidance conditions where members are partly exempt or part-owned / managed by third parties.
Impact on VAT Cashflow
Where businesses currently have differing VAT periods, with a VAT group there will only be one period to consider. This may affect VAT cash flows; if any businesses are currently in a typically VAT repayment position, by grouping these will be offset against others who may be regular VAT payers. It may also be the case that inter-company charges create a positive cashflow benefit with the related VAT, so the overall impact of a single return for both/all companies should be considered fully ahead of any group application. Depending on the size of the returns for each business this may still result in overall repayments for the group in each period and monthly group returns may be appropriate.
If you have any questions on VAT grouping, please discuss with your usual Henderson Loggie contact or our VAT contacts noted below.