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HMRC internal manual

Compliance Handbook

Penalties for inaccuracies: how to process the penalty: suspension of a penalty: suspension conditions: VAT groups

S43 VATA94 determines that any business carried on by a member of a VAT group (any company in the group of companies) shall be treated as carried on by the representative member (RM). The VAT RM is ‘P’ in respect of any of the groups VAT affairs as they are responsible for submitting a single VAT return.

For the purposes of Sch 24 FA2007, the company acting as RM acts in two different capacities.

  • It acts as a RM with the statutory duties and responsibilities peculiar to VAT groups “P1”.
  • It acts as itself - as a legal entity with the duties and responsibilities attaching to its own existence ‘P2’.

These are two different ‘P’s

Where a careless penalty in a VAT return made by an RM is suspended, the suspension conditions can only relate to the functions/obligations/responsibilities that the company has as the RM.

The specific conditions must relate to the VAT systems and processes and address the particular issue that caused the inaccuracy being penalised. They do not necessarily have to be undertaken by the RM; they can relate to the whole VAT group or to specific members of the group, depending upon where and how the inaccuracy arose.

The generic conditions must relate to the returns and payments that the RM is obliged to make as RM. These only relate to VAT.


VAT Group AB is made up of 2 companies, Company A and Company B. A problem with the record keeping of Company B results in the group VAT return containing a careless inaccuracy. HMRC charge a penalty but agree to suspend it.

The specific suspension condition applies to Company B - because that is where the inaccuracy arose. But Company A, in its capacity as RM, is responsible for agreeing the suspension conditions and for certifying that the conditions have been met at the end of the suspension period.

The generic suspension condition is that all returns that are due in the suspension period must be made on time. But that only applies to the VAT group VAT return. So;

  • If company B does not submit its Corporation tax return on time during the suspension period, there is no effect on the VAT group suspended penalty because Company B is not P.
  • If Company A does not submit its employers return (P35) on time during the suspension period, there is no effect on the VAT group suspended penalty because Company A is not P unless it is acting as RM when submitting the group VAT return.
  • If Company A does not submit the group VAT return on time during the suspension period, the suspended penalty will become payable because Company A is only P when it is acting as RM.