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HMRC internal manual

VAT Groups

HM Revenue & Customs
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Eligibility for VAT group treatment: control conditions: control of bodies corporate by more than one person

A person who holds more than 50% of the voting rights in a company will have a majority holding in that company and will control it.

However, individual persons who collectively hold more than 50% of the voting rights in a company do not control that company.

For example:

If A, B and C each hold 17% of the voting rights in a company, they do not control it even though their collective holdings amount to 51%. In order for them to control the company, they must hold all 51% of those voting rights in joint names. This applies to families, partnerships, unincorporated associations or any other group of persons (legal or natural).

Where a company is apparently controlled by more than one holding company, we would make further enquiries into the nature of the control.

For example:

Company A holds 51% of the ordinary shares which carry the voting rights in company C whilst another company B has the power to appoint or remove the majority of the board of directors. On the face of it this means that the subsidiary is entitled to join the VAT group of either A or B.

However, the articles of association or the memorandum of association provide that the minority percentage of shares held by VAT group B carry an entitlement to 99.5% of the profits from the company. There might also be a clause, which gives B the power to veto or overturn anything that A might choose to do using its voting rights.

The effect is that whilst both of the companies meet the control conditions, company A has only nominal control over the subsidiary for the purposes of the Companies Act 2006, section 1159 and schedule 6 and the real economic interest and control being held by company B.