VAT group registration membership

8 August 2018

HM Revenue and Customs have announced recently that VAT group registration membership eligibility will be extended to sole proprietors and to partnerships, where those entities exert ‘control’ (as defined by VAT legislation) over the other members of the VAT group.

Currently, UK VAT grouping legislation allows two or more corporate bodies (companies and limited liability partnerships) – to register as a VAT group if each body is established in the UK and they are under common control. The Finance Bill introduces amendments which allow individuals and partnerships, subject to certain conditions, to join a VAT group.

The measure will widen the eligibility criteria for VAT grouping to include non-corporate entities which have a UK business or fixed establishment and control the body corporate(s) within the VAT group. In determining whether there is a business or fixed establishment in the UK, the tests used for the place of supply for VAT purposes should be used. In terms of control, the non-corporates would be regarded as akin to a holding company. Partnerships eligible to VAT group can consist of individuals, corporate bodies and Scottish partnerships.

The advantages of VAT grouping

  • Cash flow benefits – qualifying individual sole traders and partnerships will no longer have to account for VAT on goods and services supplied between fellow VAT group members
  • Administrative benefits – there need only be one single VAT return for the group registration

There can also be potential disadvantages, such breaching the thresholds for the continued use of certain schemes (e.g. the Cash Accounting Scheme), or breaching the threshold for partial exemption (e.g. where some members of the VAT group make VAT exempt supplies). Moreover, HMRC may not allow certain VAT group applications for ‘protection of the revenue’. Therefore, it is important to take a full view of the matter before a VAT group is established or added to.  As such, advice will be bespoke to the particular circumstances of the proposed arrangement. 

The precise date for implementation is not yet known and will be announced by HMRC after the 2018/19 Finance Bill receives Royal Assent.  As the detail becomes clearer, we will provide you with further commentary in terms of practical opportunities.


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