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HMRC internal manual

VAT Groups

VAT groups - protection of the Revenue: effect of the use of our revenue protection powers

You must take account of the effects that the exercise of your powers will have on the trader. It may subject the trader to onerous administrative or accounting burdens, which you must note. It doesn’t necessarily mean that you should refrain from using these powers.

You should seek to quantify the burdens that grouping would alleviate and ask them to provide costings, that is to say, what the exercise of our revenue protection powers would cost them both in one-off and recurring costs.

For example:

An application to group half a dozen companies might lead to a combined one-off VAT saving for the six companies of £5,000 but would also relieve them all of an extremely onerous accounting burden. In such circumstances, there would be a strong argument that we would not be acting reasonably, if we invoked our revenue protection powers.

On the question of the stage at which accounting and administration becomes onerous, you should consider whether the accounting procedures which are being held up as a burden are largely in place, or whether it would involve significant accounting and administrative commitments over and above the existing procedures.

In the National Westminster Decision the Tribunal chairman considered the situation where a periodic charge was raised by one company against another and was apportioned between administrative and investment management services. The point was made that this apportionment was actually made for reasons other than VAT. The chairman observed on this point that:

“The copy of the invoice submitted in evidence showed that the creation of accounting entries necessary to record properly the reverse charge VAT merely involved the application of VAT to the [sum] attributed to investment management: that does not strike us as representing a significant burden”.

On the other hand, an application to group half a dozen companies might lead to the completion of an avoidance scheme or to a distortion in the nature or liability of supplies made by or to the group, thereby creating a significant VAT saving for the group members, but might not bring them any significant administrative savings. Here we would be on strong ground if we exercised our powers to protect the revenue.