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HMRC internal manual

VAT Groups

VAT groups - protection of the Revenue: when to use the revenue protection powers

All decisions to use the revenue protection powers should be agreed in advance by the, VAT Deductions & Financial Services Team responsible for VAT grouping at 100 Parliament Street. Contact details are available on the policy intranet homepage. Please see VGROUPS06300 for more information on procedure.

These powers should be used only in the following circumstances:

  • collection of revenue
  • VAT avoidance
  • distortion
  • lack of co-operation with Departmental enquiries.

Collection of revenue

You may invoke our revenue protection powers where grouping would lead to, or has led to, an enhanced tax risk, or where it would render it less likely that the tax due would be safely collectable. For example, where one or more proposed members of a group have consistently failed to pay VAT debts.

However, you should also bear in mind that the joint and several liability imposed on VAT groups may reduce the risk to the revenue, rather than increase it.

Applications may be refused if all the prospective members of the group have a poor compliance record; or where you have evidence to suggest that a company which is in debt due to the Department and at risk of losing assets, plans to join a VAT group in order to divest itself of its assets to another group member to avoid losing them in satisfaction of the debt.

VAT avoidance

You can use your revenue protection powers where you have evidence to show that the grouping facility is being, or will be, used as a vehicle for some VAT avoidance scheme. You will find examples of this in VGROUPS08000.


The Commissioners can refuse applications or remove existing group members where we are satisfied, and can demonstrate, that allowing the application, or allowing group treatment to continue, would lead to a distortion in the liability of the group’s supplies.

We can also use the revenue protection powers where we consider, and have evidence to support our view, that the grouping facility is being used deliberately to exploit the partial exemption provisions or the retail schemes, for example.

Lack of co-operation with Departmental enquiries

The revenue protection powers can also be used if the companies concerned consistently fail to co-operate with your requests for information, papers, documents, etc in relation to possible risks to the revenue which you are asking for in the course of enquiries into a grouping application.

It is important to bear in mind that, if we are refusing an application for lack of co-operation, we may have to justify our actions before the tribunal. A simple assertion that the trader was not co-operative is unlikely to succeed.

You will need to demonstrate the risks that prompted your initial enquiries and that it was reasonable to view them as risks.

Refusal, or the threat of refusal, should not be used as a negotiating tactic in Partial Exemption method discussions or as a substitute for a suitable method.

You cannot refuse an application for grouping simply because the company or group of companies making the application has a history of VAT avoidance. To refuse an application under these circumstances, we must have evidence that the specific application which we are seeking to refuse is likely to lead to avoidance. The fact that companies concerned have a history of avoidance will form part of that evidence but is insufficient on its own.

Overall approach

HMRC must use all discretions in a considered and proportionate way. We must be sure that the use of a power is not ‘a sledgehammer to crack a nut’, imposing compliance costs on the trader which are out of proportion to any avoidance or distortion prevented. In order to make such decisions HMRC clearly need evidence about the likely compliance impact on the trader.

However there may be circumstances where there is sufficient revenue at stake, time is short and a decision must be made without full information (particularly if the applicant is uncooperative). If, on balance, the risks justify action, then it can be taken. If this is necessary then we should make all efforts to mitigate the impact so long as this does not compromise the revenue.