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HMRC internal manual

VAT Groups

HM Revenue & Customs
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Eligibility for VAT group treatment: ceasing to meet the eligibility criteria

Where you discover that any of the eligibility criteria (i.e. the control conditions or the conditions of territorial scope (the “established” and “fixed establishment” criteria)) are not met in respect of a company, which continues to be treated as a member of a VAT group, we would take steps to remove it from the VAT group. An application by the trader is not required. 

The termination of invalid group treatment (whether that involves merely excluding one or two companies from a group or disbanding a group altogether) does not necessarily have to take effect from the date on which the company ceased to be eligible to be grouped. The law gives us some discretion in this matter and we would take a flexible approach balancing the effects on the business against the cost to the revenue.

Where the invalid group treatment was allowed by a member of the department, apparently with all the facts before them, the exclusion of the invalid group member or members or the disbandment of the group should take effect from a current date.

You should also consider whether the company newly excluded from the VAT group should now be registered in its own right.


The date with effect from which the company is removed from the group is a matter for the Commissioners’ discretion (under section 43C(3)) and this discretion must be applied in a reasonable manner. For example, if the removal of a company from a group with effect from a current date would not put it at a tax advantage, there should be no reason to backdate the exclusion of the company from the group. If, on the other hand, the continued inclusion of the company in the group has led to a significant mitigation of its net tax liabilities, we will consider backdating the exclusion of the company (but only to 1 January 1998 at the earliest). This may, of course, mean that the company being excluded from the group will have to be registered in its own right with retrospective effect.

Before setting the date for the exclusion of companies from VAT groups under section 43C, we should review the position to confirm whether the exit is motivated by tax avoidance (e.g. the final move in an ‘exit scheme’ (see VGROUPS07000)). If we find that the removal of the company from the group at a set date would facilitate avoidance, we will still have to remove it. However we might be able to time the removal to prevent the avoidance; otherwise we would then have to consider the issue of a notice of direction under Schedule 9A to the VAT Act 1994 (see VGROUPS07000)

If we are unable to establish whether control is exercised, we should contact the trader and require more information. The trader would be expected to give full details of the proposed structure of the group, copies of the memorandum and articles of association and the latest annual accounts, Companies House returns, financial reports and a succinct explanation of how the control conditions are met.