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HMRC internal manual

VAT Groups

HM Revenue & Customs
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Eligibility for VAT group treatment: 'established' and 'fixed establishment'


VAT Act 1994, section 43A provides that only corporate bodies, which are established or have a fixed establishment in the UK are entitled to be members of a UK VAT group.

It is important to remember that an overseas company which is entitled to register in the UK in its own right under any of the registration provisions of the VAT Act 1994 (Schedules 1 to 3B) is not, simply by virtue of that fact, established in the UK and does not necessarily have a fixed establishment in the UK for the purposes of the group treatment provisions.

In the same way, a company which belongs in the UK within the meaning of VAT Act 1994, section 9 (place of supply of services) on grounds of its usual place of residence is not, as a result of that fact, automatically considered to have met the established or fixed establishment conditions. However, if the company has a business establishment or some other fixed establishment in UK for section 9 purposes, we would accept it is established in UK for the purposes of the VAT grouping rules.

Where HMRC receives an application from a company arguing it is entitled to group treatment because it belongs in the UK under VAT Act 1994, section 9, we would not accept such an application purely on that basis. Rather we would check to see whether they meet the establishment conditions detailed below before we make a decision on the application.

There are a number of reasons for setting the conditions of territorial scope for VAT group treatment slightly tighter than it is for general registration purposes:

  • The EC law vires for VAT grouping actually requires that all group members must be “established” in the UK (see below for the );
  • Grouping provision is an administrative facilitation measure and it was intended that it should be “exclusive” rather than “inclusive”.
  • Whilst there is no apparent problem (bearing in mind the joint and several liability imposed on all the group’s members) in allowing one overseas company with no real physical presence in the UK to join a VAT group of UK companies, potential problems arise when few, or none, of the companies in a group have a physical presence in the UK and, as a result, have nothing in this country against which to levy distress.

Definition of established

A business is usually regarded as being “established” where the essential management decisions are undertaken. It is normally the headquarters or head office. You can find more information in VATPOSS04000 and VAT Notice 741A - Place of supply of services (Web).

Definition of fixed establishment

A “fixed establishment” is an establishment of business that has a sufficient degree of structure and permanence in terms of human and technical resources to enable it provide the services that it supplies.

This takes the conditions of territorial scope for grouping slightly wider than envisaged by the Sixth Directive (77/388/EEC). Consequently, for grouping purposes, a company may generally be considered to have a “fixed establishment” in the UK if it has a real trading presence in the UK, that is to say, if:

  • it has a permanent place of business in the UK, and
  • that place of business comprises sufficient human and technical resources for it to carry on its business activities.

A company is not considered to have a “fixed establishment” in the UK for grouping purposes merely as a result of the fact that:

  • it has a “brass plate” presence in the UK
  • it carries on business through a UK agent, or
  • it has a UK subsidiary.

You can find further guidance in section 3 of VAT Notice 741A - Place of supply of services (Web).

Effect of inclusion of overseas companies in VAT group

When an overseas company is included in a UK VAT group, it is that company in its entirety which is included in the group; not just the UK branch or establishment.

This means that any supplies of goods or services between any of the branches or establishments of the overseas company anywhere in the world and UK based members of the same group fall to be disregarded (under section 43(1)(a)) for the purposes of UK VAT. However, this is subject to anti-avoidance rules in section 43(2A)-(2E) (see VGROUPS01300, VGROUPS01350 and VGROUPS01400).

It also means that if any of the world-wide branches or establishments of that company make any taxable supplies of goods or services in the UK, any tax due on those supplies must be accounted for by the representative member of the group.

However, for the purposes of the VAT Act 1994, section 9, all the establishments of all the group members, whether in the UK or overseas, are to be treated as establishments of the representative member. The group is to be treated in the same way as you would treat a single company registered on its own. This principle was upheld by the VAT & Duties Tribunal in Shamrock Leasing Ltd v The Commissioners of Customs & Excise, LON/98/184, VTD 15719.