Group VAT registration – a solution to managing multiple VAT returns?

Recently a corporate client asked me for advice regarding a possible group VAT registration application. The client owns three entities, each of which are required to prepare and submit their own VAT returns, and the client was hopeful that a group VAT registration would be the path to relieve some of the administrative burden.

A group VAT registration enables two or more bodies corporate (limited companies/LLPs etc.) to be treated as a single taxable person for VAT purposes and submit just one VAT return each period.

So, could the client simply form a VAT group?

In accordance with HMRC guidance 700/2, a group VAT registration can only be formed if the following criteria are met:

  • The bodies corporate are each established in the UK;
  • The bodies corporate are held under common control;
  • The bodies corporate satisfy the requirements of section 3 of HMRC guidance 700/2 (if applicable).

The client’s entities are established in the UK, as they were all incorporated in the UK. Its principal business activity is also controlled and managed within the UK and therefore each of the entities pass this test.

Common control is defined as either all members of the group are controlled by one member of the group, or they are all controlled by a single ‘person’ who is not one of the members of the group. A person can be a legal entity such as a company, an individual, or a partnership. In my example the client had 100% ownership of each of the companies and therefore was deemed as having control.

The final point was not applicable in this scenario as the criteria in section 3 of the HMRC guidance intends to prevent partly exempt purchasers of services from setting up joint ventures within their VAT group in order to buy services without incurring irrecoverable VAT.

Therefore in this instance my client passed the criteria to form a VAT group.

However before going ahead with the application, they wanted ensure that they were fully aware of the pros and cons of being in a VAT group. The key ones of these have been summarised below.

Advantages

  • Representative member only submits one VAT return.
  • No VAT is chargeable on supplies made within the VAT group – no timing differences on payment/reclaim of VAT on intra group supplies.
  • Clearer to understand the net VAT position.
  • Only need to trace payments/receipts to one bank account.
  • Ideal for centralised accounting systems.

Disadvantages

  • Need to ensure that information for all entities is obtained prior to the due date.
  • All entities within the group are jointly and severally liable for the representatives VAT liability.
  • The limit for voluntary disclosures of errors on past returns applies to the group as a whole.

In addition to the above, consideration has to be made in respect of the initial administration when first becoming part of a VAT group. All previous VAT registrations are cancelled and are replaced with one single group VAT registration number. The client would need to ensure that they notified their customers and suppliers of the changes from the effective date, in addition to ensuring their correspondence and systems were updated with the revised details (e.g. Letterheads etc.).

In this case, the client decided to go ahead with the group VAT registration process and have not looked back since. However, before deciding to go ahead with a group registration, it is important to consider all administrative requirements such as the ability to obtain all group members’ VAT return information at the same time. Whatever you decide, I also recommend you refer to the HMRC guidance 700/2 or obtain advice before making that step.

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