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HMRC internal manual

VAT Groups

Eligibility for VAT group treatment: effect of insolvency on existing groups

Insolvency of a holding company

If a holding company for a group registration becomes insolvent, the Insolvency Practitioner (IP) assumes control of that company. When the IP assumes control he also effectively assumes control of all the subsidiaries of that company. In such circumstances, departmental policy is to remove all the solvent companies from the group registration, leaving only the insolvent companies in the group.

Normally there are no objections from the group members to such action but there is no legal requirement by which HMRC can insist that the solvent companies be removed from the group, unless there are eligibility or revenue protection grounds for doing so. Where the companies involved wish to keep the group registration intact, we may allow them to do so providing the normal eligibility criteria continue to be met.

If the holding company is a member of a group (whether as the representative member or a subsidiary member) the company can be allowed to remain in the group if it wishes to do so. If the holding company is not a member of the group, this will not affect the group over and above that set out immediately above unless the IP disposes of the company’s shares in the subsidiaries.

Insolvency of a group member

If a group member (other than the holding company) becomes insolvent, the fact that the IP assumes control of that company means that it is no longer controlled either by the holding company of the group or by its immediate holding company. As a result, the normal control conditions are no longer met and the subsidiary will need to be removed from the group with effect from the date that the IP is appointed.

If that subsidiary controls one or more companies which are also within the group, then the subsidiary, and all those companies in which it has a controlling interest, will have to be removed from the group.

If the group member concerned is the representative member, the group will need to appoint a new representative member.