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HMRC internal manual

VAT Groups

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HM Revenue & Customs
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General principles of VAT group treatment: liability for tax of the representative member

Goods or services supplied by or to any member of the group are treated as if they were made by or to the representative member. Any VAT due, from any member of the group, on supplies of goods and services and on the acquisition or importation of goods, is treated as due from the representative member, and the goods are treated as having been acquired or imported by the representative member.

The representative member is not responsible for accounting for VAT due on supplies made by other members of the group before they joined the group. Where a company joins a group and you subsequently find that there is VAT due from that member on supplies it made before it joined the group, HMRC cannot raise an assessment against the group but will address it to the individual company concerned using its previous VAT registration number. This will probably mean raising a manual assessment.

In Thorn Plc -v- the Commissioners of Customs & Excise LON/96/1708 it was held that an assessment for VAT due from the group should be issued in the name of the corporate body acting as the group’s representative member at the time the assessment was raised. This is regardless of whether that company was a member of the group when the liability actually arose.

Thorn Plc (Thorn) was incorporated in March 1996 and took over as the representative member of a group from Thorn EMI Plc. The Commissioners raised an assessment against the group in September 1996 in respect of the periods ending December 1994 and March 1995. Thorn disputed the assessment contending that the assessment was invalid because it should have been raised against Thorn EMI Plc which was the representative member of the group at the time that liability for tax arose. Thorn further argued that the representative member of a VAT group was deemed to make supplies as a principal and that company was therefore required to account for tax on them. The Commissioners argued that Thorn EMI Plc and Thorn in acting as representative members of the group acted in a representative capacity and that the tax was assessable against the representative member for the time being; i.e. the company acting as the representative member at the time that the assessment is made.

The Tribunal held that the representative member of a VAT group had a statutory function. It held that it did not act in a representative capacity as a trustee or agent of the group. The statutory function of the representative member enabled the group to be taxed as a single taxable person (see The Commissioners of Customs & Excise -v- Kingfisher Plc, QB [1994] STC 63) through the representative member. The term “representative member” is a reference to the company which is currently fulfilling that function. If returns made by Thorn EMI, whilst it acted as representative member of the group, were incorrect or incomplete, any assessment made would have to be made against the representative member of the same group. When the assessment was made in this case, Thorn EMI no longer had any statutory obligation to act for the VAT group in question. The tribunal held that if Thorn’s argument had been correct, the Commissioners powers to assess and recover VAT due would be frustrated and this would be against the general scheme of VAT legislation. Thorn Plc -and- the Commissioners of Customs & Excise, LON/96/1708.