VAT grouping eligibility criteria changes
Updated 31 October 2018
© Crown copyright 2018
This publication is licensed under the terms of the Open Government Licence v3.0 except where otherwise stated. To view this licence, visit nationalarchives.gov.uk/doc/open-government-licence/version/3 or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: psi@nationalarchives.gov.uk.
Where we have identified any third party copyright information you will need to obtain permission from the copyright holders concerned.
This publication is available at https://www.gov.uk/government/publications/vat-grouping-eligibility-criteria-changes/vat-grouping-eligibility-criteria-changes
Who is likely to be affected
Prospective users of VAT grouping, such as partnerships and individuals, who control body corporate subsidiaries.
General description of the measure
This measure will allow non-corporate entities to join VAT groups, subject to certain conditions.
Policy objective
This change will help reduce VAT accounting for specific businesses.
Background to the measure
The government announced that it would consult on VAT grouping at Autumn Statement 2016.
A consultation document (Scope of VAT Grouping) was published on 5 December 2016. The government’s response to this consultation was published on 5 December 2017.
Draft legislation was published for consultation on 6 July 2018.
Detailed proposal
Operative date
This measure will have effect after the date of Royal Assent to Finance Bill 2018-19, on a day to be appointed by Treasury regulations.
Current law
Current law is contained in section 43A-43D of VAT Act 1994. Regulations can be found in VAT (Groups: eligibility) Order 2004.
EU law is contained in Article 11 of the Principal VAT Directive 2006/112.
Proposed revisions
Legislation will be introduced in Finance Bill 2018-19 amending Section 43A of VAT Act 1994 to allow a non-corporate entity (such as partnership or individual) to join a VAT group with its body corporate subsidiaries if it controls all of the members in a VAT group.
Under the new amendment, the non-corporate entity must demonstrate that it controls all of its body corporate subsidiaries. The test at section 43AZA will apply assuming the non-corporate entity would pass the test if it was a corporate body.
Secondary legislation in the VAT (Groups: eligibility) Order 2004, will be amended to prevent a misuse of the new VAT grouping eligibility criteria.
Summary of impacts
Exchequer impact (£m)
| 2018 to 2019 | 2019 to 2020 | 2020 to 2021 | 2021 to 2022 | 2022 to 2023 | 2023 to 2024 |
|---|---|---|---|---|---|
| negligible | negligible | negligible | negligible | negligible | negligible |
This measure is expected to have a negligible impact on the Exchequer.
Economic impact
This measure is not expected to have any significant economic impacts.
Impact on individuals, households and families
This measure has no impact on individuals or households as it only affects businesses. There is no impact on family formation, stability or breakdown.
Equalities impacts
It is not anticipated that there will be an impact on any specific group with protected characteristics.
Impact on business including civil society organisations
This measure is expected to have a negligible impact on businesses and civil society organisations who will now be able to benefit from the VAT grouping provisions.
One-off costs include familiarisation with the VAT grouping rules and eligibility criteria.
On-going savings will be available to any businesses that join a VAT group as they will no longer need to account for VAT on goods or services supplied between group members and are therefore no longer required to submit individual VAT returns, as a single VAT return is submitted for the whole group.
Operational impact (£m) (HMRC or other)
This measure is expected to have a negligible operational impact.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
There will be ongoing monitoring through receipts of new VAT grouping applications and information collected on tax returns.
Further advice
If you have any questions about this change, please contact John Quayle by email: cit.vatregistration&accountingpolicy@hmrc.gsi.gov.uk