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HMRC internal manual

VAT Groups

HM Revenue & Customs
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Business Brief 15/99 - VAT Groups - Protection of the Revenue

Note: This Business Brief is set out as it was initially published and so refers to HMC&E and the VAT and Duties Tribunal. All such references should be read as references to HMRC or the Tax Tribunal. Further guidance on protection of the revenue is given in VGROUPS06000.

In the 1999 Budget changes to the VAT grouping rules were announced. This included a new revenue protection power. This Business Brief sets out our approach to this new power, and to our use of existing revenue protection powers contained in the grouping legislation.


    1. The VAT grouping facility was introduced with the tax in 1973 and has always contained powers to refuse certain applications for grouping, for the protection of the revenue. Over the years those powers have been amended so that, prior to the 1999 Budget, we were able to refuse applications for:
    • a new VAT group to be formed;
    • a company to be added to an existing VAT group;
    • a company to be removed from an existing VAT group;
    • the representative member of a VAT group to be changed;
    • a VAT group to be disbanded.

1999 Budget changes

    1. There were two changes in this area announced in the Budget. They will come into force on Royal Assent. These are that:
    • grouping applications will be given immediate provisional effect from the date that we receive them. We will then have 90 days from the receipt of an application to decide whether to refuse the application for the protection of the revenue; and
    • we will be able to remove a company from an existing VAT group for the protection of the revenue. This power is not subject to any 90-day limit.

How will we operate the 90-day rule?

    1. If you have properly completed your application forms, we will aim to respond to you within 15 working days of their receipt with either:
    • a new VAT registration number for the group; or
    • notify you that your application to amend the composition of your group has been processed.
    1. We will also aim to inform you within 15 working days of receipt if further enquiries are to be made. Our letter will include confirmation of the date of receipt of the application.
    1. If we consider that further enquiries do need to be made into your application we shall endeavour to complete those enquiries as soon as possible after receiving your application. We will notify you of the outcome of our enquiries as soon as they are completed. If we have not written to you to let you know the outcome by the end of the 90 day period, we will not be able to refuse the application.
    1. If we do refuse an application it will effectively be set aside and it will be deemed never to have been allowed or effected. This may mean that:
    • you will have to notify a liability to register for VAT in accordance with the normal rules; or
    • we will reinstate the VAT registration number that you held when you made the application for grouping with effect from the date on which it was cancelled for you to join the group; and
    • the representative member of the VAT group will have to submit a voluntary disclosure to reverse the VAT accounting done while the change had provisional effect.
    1. It is therefore in your interest to provide information quickly in respect of your provisional grouping, if asked to do so. If you think, after reading this Business Brief, that your application is one which we may refuse, you must draw our attention to the relevant facts and issues at the time of your application.

What will happen when a company is to be removed from a group?

    1. When a revenue concern is identified relating to an existing group member, we will write advising you that enquiries are being made and that the company may be removed from the group for the protection of the revenue. It is in your interests to provide information quickly when asked to do so. Any failure to provide information may mean that factors are not taken into account which may affect the outcome of our considerations. We will notify you of the outcome of our enquiries as soon as they are completed.
    1. When a decision is made to remove a company from a group we will give written notice specifying the date from which the company is to be removed. This date cannot be before the date when the notice is given. We will normally provide sufficient notice to allow you time to reorganise your affairs but in some circumstances we may need to take prompt action.

The meaning of “for the protection of the revenue”

    1. Even though some of the revenue protection powers for groups are new, the concept of refusing group applications for the protection of the revenue is not. Until the Budget changes are enacted, the relevant legislation is set out in section 43(4) & (5A) of the Value Added Tax Act 1994. The meaning of “protection of the revenue” in this context was recently discussed in the VAT & Duties Tribunal in the case of National Westminster Bank PLC v The Commissioners of Customs & Excise (LON/97/124).
    1. Paragraph 72 of the decision says that:

    “the protection in question under section 43(5A) may be against any loss of revenue which is not de minimis whether or not it follows from the normal operation of grouping. It certainly covers an artificial avoidance scheme but it also covers a straight forward case which would not be characterised as avoidance or abusive”.

    1. In future, we will not normally use our revenue protection powers when we consider that the revenue loss follows from the normal operation of grouping. By this, we mean the “revenue loss” which occurs because VAT is eliminated on the value added by a group member, when a supply takes place between two group members. This includes the loss arising from supplies between group members being disregarded, where the recipient of the supply would not normally be able to deduct that VAT because it makes exempt supplies. We would normally consider such revenue loss, the same as if the VAT group members were all one company, to be a natural result of grouping.
    1. Where we consider that there seems likely to be a revenue loss that goes beyond the accepted result of grouping, we will feel entitled to use our revenue protection powers. When deciding in any particular case whether to refuse a VAT group application, or to expel a company from a VAT group, we will bear in mind the decision in National Westminster Bank. Paragraph 74 of that decision says:

    “the phrase ‘necessary for the protection of the revenue’ must be considered as a totality and involves a balancing exercise in which the Commissioners must weigh the effect on the Appellant of refusal of grouping against the loss of revenue likely to result from grouping”.

Weighing the likely revenue loss against the administrative cost of using our powers

    1. When considering whether or not to use our revenue protection powers, we will aim to follow this approach. If we have concerns that the revenue loss does go beyond the accepted consequence of VAT grouping, we will ask for relevant information about the administrative savings that grouping brings in the particular circumstances, and an estimate of the revenue impact of grouping. We will normally ask you to comment on the impact, on your business, of any refusal or removal on our part. For example, you may incur extra costs in having to submit an extra VAT Return, or in having to account for VAT on supplies between group members. The extent of these costs will depend on how your accounting systems are set up.
    1. We will weigh any likely abnormal revenue loss against the administrative cost to you of our refusal or removal. When that revenue cost significantly outweighs the administrative cost we will consider invoking our powers.

Decisions and appeals

    1. We will make a judgement based on the information that you provide, and any other information that we have. If you fail to provide the information that we ask for, we will endeavour to come to a balanced decision based on the information that we already have to hand. But if you consistently fail to provide information or records which we might reasonably request in the course of our enquiries, that may be treated as sufficient grounds for exercising our revenue protection powers.
    1. Any decision on whether to exercise our revenue protection powers will take into account the scheme of VAT as a whole. Our internal guidance will make it clear to local VAT assurance officers in what circumstances they must have headquarters’ agreement before using the revenue protection powers.
    1. If we invoke our revenue protection powers, we will write to you explaining why. If you disagree with our view, you can appeal to the VAT & Duties Tribunal who can rule on whether our decision was reasonable in the circumstances.

If you have any questions, please contact your local VAT Business Advice centre listed under Customs and Excise in your local telephone directory.