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HMRC internal manual

VAT Groups

From
HM Revenue & Customs
Updated
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General principles of VAT group treatment: other matters

Partial exemption and the Capital Goods Scheme (CGS)

A VAT group will be partly exempt if any of its members incur exempt input tax. If a VAT group is partly exempt then any necessary calculations will cover the whole group and not just any members making exempt supplies. If it has a special method then that method covers all activities of the group. Any member joining the group will be covered by the group’s method and any method they had prior to grouping will lapse.

Where any member of a VAT group owns a capital item it is considered to be owned and used by the representative member. However if the member that actually owns the item leaves the group they take the item with them. Whilst the representative member is owner of an item they are responsible for declaring any adjustments due. There are special rules applicable to the intervals of capital items that enter or leave a VAT group in this way. See also revenue protection guidance in VGROUPS06000.

Section 33 bodies (for example local authorities)

Section 6.4 of V1-14 explains the circumstances in which a section 33 body can form/ join a group registration and other relevant matters.

Group member with ‘special status’

VAT Act 1994, Section 43(1AA) provides that if a member of a VAT group has ‘special status’ resulting in a transaction with that member having a different VAT outcome to that which would be the case were the transaction with the representative member, that status attaches to the representative member (who is deemed to be making any supply) when considering that transaction. This also applies to supplies received by the group.

For example, where the member provides education or cultural services as an ‘eligible body’ under the relevant provisions in VAT Act 1994, Schedule 9, but the group representative member is not an ‘eligible body’.

Retailers and retail schemes

Retailers using a retail scheme must apply the scheme to the group as a whole and not just to the individual retailers. Further information about retail schemes can be found in V1-23, Chapter 10.

Non-trading companies

Subject to the above conditions, non-trading, dormant or shell companies, or other bodies corporate and bodies corporate, which make only exempt supplies, may be included in a VAT group. However, HMRC can refuse an application to include such companies, or indeed any company, in a VAT group if we have evidence to suggest that it is to be used in a VAT avoidance scheme.

Intending traders

Subject to the above conditions, an intending trader may join a group registration or a group of intending traders may form a group registration.

Insolvent companies

Subject to the above conditions, if two or more insolvent companies apply to form a group, they may only do so if they are all controlled by the same insolvency practitioner (IP) (i.e. not the same IP firm, but the same individual appointed as IP). For details of the effect of insolvency on an existing group member; see VGROUPS02350.

Corporate trustees

Subject to meeting the above conditions, a body corporate, which acts as a trustee of a trust may be allowed to join a VAT group. Further information on trusts can be found in V1-28: Registration Part 1.

Tour operators

Article 13 of the VAT (Tour Operators) Order 1987 provides for the disqualification of tour operators from membership of a VAT group under certain circumstances. These are that no tour operator (which includes those making supplies of passenger transport, accommodation etc. in-house) can belong to the same VAT group as another, if either of them:

  • has an overseas establishment, and
  • makes supplies outside the UK which would be taxable supplies (standard or zero rated) if they were made in the UK, and
  • supplies goods and services which will become, or are intended to become, margin scheme supplies.

Further information regarding TOMS can be found in V1-12 and VAT Notice 709/5 Tour Operators Margin Scheme (Web).

VAT groups which make no taxable supplies

Group treatment is permitted where, as a result of the formation of the group, none of the members makes taxable supplies outside the group. However, in consequence the group will have no entitlement to recover any input tax.

In order to be eligible for group treatment in these circumstances, at least one of the members must be liable or eligible to be registered for VAT, if it were considered on its own outside the group.

Even though the group makes no taxable supplies outside the group, it must be registered and must render returns (albeit nil returns) in the normal way.

Membership of a second group or of a partnership

HMCE’s long-standing policy was that a company may not be a member of more than one VAT group at the same time. The VAT Act 1994, section 43D (effective from 22 July 2004) put this into law.

A company may be a partner in a partnership or limited liability partnership while being a member of a group. However, normally the partnership is still treated as a separate entity for VAT purposes - the VAT group representative member is not treated as carrying on the partnership business or making or receiving supplies to or from the partnership.

The exception to this is where the company is the sole general partner of a limited partnership (NB this is not the same as a limited liability partnership), because in that case partnership law says the partnership activity must be carried on by the general partner alone - the limited partners cannot be involved. If the limited partnership is making supplies to other VAT group members, the anti-avoidance legislation in SI 2004/1931 may restrict VAT grouping - see VGROUPS03000.