Tag Archives: vat-group

New VAT Group rules

By   6 November 2019
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Changes to VAT Group rules – an increased opportunity

From 1 November 2019 the rules for VAT grouping have changed.

What is a VAT group?

A VAT group allows two or more entities to account for VAT under a single registration number with one of the corporate bodies in the group acting as the representative member.

The group is registered in the name of that representative member, who is responsible, on behalf of all of the other members of the group, for completing VAT returns and paying and reclaiming VAT.

All supplies of goods and services made by any member of the group to a third party outside the group are treated as having been made by the representative member. Similarly, any supply of goods or services made by a third party outside the group to any member of the group is treated as having been made to the representative member.

Supplies of goods or services between group members are not subject to VAT and a single VAT return will be completed each period for the entire group, as opposed to separate businesses submitting individual returns.

The changes

Prior to 1 November, only bodies corporate were able to form a VAT group (mainly companies and LLPs). From the beginning of this month, VAT grouping is additionally available for all entities, including; partnerships, sole traders and trusts in certain cases.

Eligibility

Via existing legislation, grouping is permitted if the control tests are passed. Bodies corporate can form a VAT group if:

  • each is established or has a fixed establishment in the UK
  • they are under common control

(There are additional tests for certain ‘specified bodies’ set out in Notice 700/2 para 3.2)

‘Control’ has a specific meaning based on the definition of holding company and subsidiary in section 1159 of and Schedule 6 to the Companies Act 2006.

New changes to eligibility

Non-corporate entities such as individuals and partnerships can now join a VAT group if they meet all of the following conditions:

  • they are established, or have a fixed establishment in the UK
  • they can demonstrate that they control all of its body corporate subsidiaries in the group. The test will apply assuming the non-corporate entity would pass the test if it was a corporate body, eg; usually meaning 51% or more of share capital in the relevant company/companies
  • they can demonstrate that they are entitled to VAT register independently of any other business (the distinction here is that a body corporate may be included in a VAT group if it is not trading, nor intends to trade)

The current eligibility to group is set out at VAT Act 1994, Section 43A and has been updated with a new section 43AZA which includes the new changes.

VAT Group pros and cons

So, would it be beneficial to VAT group entities? I set out here the pros and cons for businesses.

  Pros

  • only one VAT return per quarter – less administration
  • no VAT on supplies between VAT group members.
  • no need to invoice etc or recognise supplies on VAT returns
  • likely to improve partial exemption position if exempt supplies are made between group companies.
  • likely to improve input tax recovery if taxable supplies are made to partly exempt group companies
  • may provide useful planning opportunities/convenience at a later date.

Cons

  • all members of the group are jointly and severally liable for any VAT due
  • only one partial exemption de-minimis limit for group
  • obtaining all relevant data to complete one return may take time thus increasing the potential for missing filing deadlines
  • a new VAT number is issued
  • assessments can be issued to the representative member relating to earlier periods when it was not the representative member and even when it was not a member of the group at that time
  • the limit for voluntary disclosures of errors on past returns applies to the group as a whole (rather than each company having its own limit)
  • payments on account limits apply to the group as a whole.  This applies to a business whose VAT liability is more than £2million pa.  Please see HMRC Reference: Notice 700/60 details here
  • may detrimentally affect partial exemption position if a partly exempt company makes taxable supplies to a fully taxable group company

Planning

If you think that there is a potential advantage for you, or your clients’ business, in VAT grouping, please contact us to discuss the VAT position.

VAT – Input tax on buy out costs and VAT grouping

By   23 November 2016
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Latest from the courts

May input tax incurred by a VAT group be attributed to the activities of a single member of that group?

In the First Tier Tribunal (FTT) case of Heating and Plumbing Supplies Ltd, the issue was whether input tax incurred on professional costs of a management buyout were recoverable.

Background

A company was formed with the intention of buying the shares of a trading company.  The purchasing company and the trading company were then VAT grouped and the professional costs were invoiced to, and paid for, by the VAT group (the tax point being created after the date that the VAT group was formed).  HMRC disallowed the claim for the relevant input tax on the grounds that the purchasing company itself did not make any taxable supplies (it did not engage in an economic activity).  While this may have been correct, the appellant contended that in these circumstances, the VAT group must be considered as a single taxable person and that the activities of the group as a whole that should be considered. The input tax was an overhead of the group, and because the group itself only made taxable supplies (via the representative member) the input tax was recoverable in full by the representative member

Decision

Following recent case law in Skandia America at the Court of Justice, the judge here decided in favour of the appellant. It was ruled that HMRC may not look at the purchasing company in isolation but rather, the group must be considered as a whole.  The FTT stated that “when a VAT group is formed the identities of the individual members of the group disappear…” meaning that a VAT group is a single taxable entity, the VAT status of the individual members being irrelevant in this situation. This confirms our long held view on the status of VAT groups and provides welcome clarification on the matter.

Relevance

This case highlights that HMRC’s policy of looking at the activities of a group member individually is inappropriate.  This is so even if the grouping structure provides input tax recovery which would not have been available had the companies been VAT registered independently.

Typically in these circumstances, HMRC will either challenge the decision, or amend its guidance to reflect this ruling.  We await news on how HMRC will react.

Action

If a business has either been denied input tax on buy out or similar acquisition costs, or made a decision not to recover this VAT, it would be prudent to lodge a claim with HMRC (plus interest).

We are able to assist with such a claim.

www.marcusward.co

Should I form a VAT Group? Pros and Cons

By   19 November 2015
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VAT Groups

This is a very concise summary of matters that should be considered when deciding to form or disband a VAT group. rowing boats

VAT grouping is a facilitation measure by which two or more bodies corporate can be treated as a single taxable person (a single VAT registration) for VAT purposes. “Bodies Corporate” includes; companies of all types and limited liability partnerships.

It is important to recognise the difference between a corporate group and a VAT group – these are two different things and it should not be assumed that a corporate group is automatically a VAT group.

There are detailed rules on who can VAT group, which is an article in itself for another day, but it is worth remembering that it is possible to VAT group where no taxable supplies are made outside the group.

Pros

  • Only one VAT return per quarter – less administration.
  • The representative member accounts for any tax due on supplies made by the group to third parties outside the group. This is particularly helpful if your accounting is centralised
  • No VAT on supplies between VAT group members. No need to invoice etc, or recognise supplies on VAT return.
  • Usually improves the partial exemption position if exempt supplies are made between group companies.
  • May improve input tax recovery if taxable supplies are made to a partly exempt group company.
  • If assets are hived up or down into a group company before a company sale to a non-grouped third party, the VAT consequences of the intra-group movement may be ignored.
  • May provide useful planning opportunities/convenience at a later date.
  • Sales invoices issued, or purchase invoices received, in the wrong company name would not require time-consuming amendment.
  • There may be cashflow benefits in respect of intra-group charges.
  • Reduced chance of penalties on intra-group charges.

 Cons

  • All members of the group are jointly and severally liable for any VAT due.
  • Former VAT group members are also liable for any VAT debts due during the period of VAT group membership.
  • Only one partial exemption de-minimis limit for group – which decreases the ability to fully recover input tax.
  • Obtaining all relevant data to complete one return may take time thus possibly missing filing deadlines.
  • A new VAT number is issued.
  • The representative member needs all of the necessary information to submit a VAT return for the group by the due date.
  • Via anti-avoidance provisions, assessments can be raised on the representative member relating to earlier periods when it was not the representative member and even when it was not a member of the group at that time.
  • The limit for voluntary disclosures of errors on past returns applies to the group as a whole (rather than each company having its own limit).
  • The payments on account (POA) limits apply to the group as a whole. This applies to a business whose VAT liability is more than £2 million pa. This adversely affects a business’s cashflow.
  • The cash accounting limit of £1,350,000 applies to the group as a whole (rather than each company having its own limit).
  • Transfers of Going Concerns (TOGCs) acquired by a partly exempt VAT group may result in an irrecoverable VAT charge as a result of a deemed self-supply.
  • An option to tax made by a VAT group member is binding on all present and future members of the VAT group. This is so even after a company has left the VAT group.

We strongly recommend that professional advice is taken when a business is either considering forming a VAT group, or when thought is being given to disbanding one. Making the wrong decision could be very expensive indeed.  Specific matters that dictate VAT advice are when:

  • property is involved
  • inter-company charges are made
  • TOGCs are involved
  • costs in respect of restructuring are incurred (a current hot potato in the courts)
  • there is an international aspect to a group
  • a reverse charge applies
  • a company has been involved in the penalty regime
  • companies become insolvent
  • a VAT group is subject to POA
  • a company, or the VAT group, makes exempt supplies.

Holding companies in VAT groups and input tax recovery

By   29 September 2014
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Care must be taken when considering the recoverability of input tax incurred by a holding company.

In the past holding companies which were members of a VAT Group were treated in the same way as any other member of the group. As a result, input tax incurred by the holding company were recoverable by reference the the VAT group’s (as a whole) recovery position.

As a result of the recent Court of Appeal judgement in the case of BAA Ltd HMRC have announced an updated policy HERE

The revised policy is that that input tax is only recoverable by holding companies where it is incurred in the course of an economic activity and there is a direct and immediate link to taxable supplies, This means that a passive holding company cannot now rely solely on its membership of a VAT group to recover input tax.  For recovery, the VAT must be incurred in respect of taxable supplies made by the holding company itself.

For information on the impacts on this change – please contact us.