We regularly help clients with the formation of VAT groups and thought it would be helpful to summarise some of the key issues to consider when thinking about this useful piece of VAT planning.
The first thing to note is that a ‘VAT group’ is different from a corporate group. VAT grouping has to be specifically applied for and exists principally to eliminate VAT on supplies made between the members of a group, and, to streamline the administrative requirements (a VAT group completes a single VAT return covering the activities of all the members).
VAT grouping is only available for ‘bodies corporate’ (mainly limited companies but also includes LLPs and certain other specified bodies).
The members of the group must be under ‘common control’. This is normally determined by holding more than 50% of the share capital. The person (company or individual(s)) who controls the members does not themselves have to be a member of the group.
How to apply
An application for VAT grouping needs to be made using forms VAT 1 (application for registration), VAT 50 (appointment of ‘representative member’) and VAT 51 (one for each additional member of the group).
Why form a group?
The main reason for forming a group is the elimination of VAT on charges which take place between the members. This can be extremely beneficial where the recipient company cannot reclaim all of its VAT because it is partly exempt.
Whilst grouping can be a very useful VAT planning tool, it should not be entered into without detailed consideration of the implications in your specific circumstances. In addition to some tricky anti-avoidance provisions, HMRC have extensive powers in this area and may refuse VAT grouping ‘for the protection of the revenue’.
There are also a number of other considerations which need to be borne in mind.
One example is that members of a VAT group are jointly and severally liable for the VAT debts of any of the group members. Another is that the VAT partial exemption de minimis limits, error correction notification limits and a variety of other monetary limits apply to the group as a whole rather than to each group member individually.
If you think grouping might benefit your business, please feel free to get in touch. We can take you beyond the form-filling and explore whether or not a VAT group is the best way forward.