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HMRC internal manual

VAT Refunds

From
HM Revenue & Customs
Updated
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Claims for overdeclared output tax: Who can claim: VAT groups

Where an overdeclaration of output tax is made by a member of a VAT group, the entitlement to claim remains with that VAT group for as long as the group remains in existence.

This applies regardless of any changes in the composition of the VAT group. Thus the only person who can make a claim for an amount overdeclared by a member of a VAT group is the company that is the representative member of the VAT group at the time when the claim is made.

For example:

In a group consisting of Anna Ltd, Bernard Ltd, Cornelis Ltd, Dirk Ltd and Eduard Ltd, Anna Ltd is the representative member. Bernard Ltd, Cornelis Ltd, Dirk Ltd and Eduard Ltd are subsidiary members.

Cornelis Ltd overdeclares his output tax entitlement and that is reflected in the return rendered by Anna Ltd in its capacity as representative member. Shortly afterwards, Anna Ltd and Cornelis Ltd leave the VAT group and are replaced by Ferdinand Ltd and Gerard Ltd. Gerard Ltd takes over as the representative member.

A couple of years after the overdeclaration was made the group’s tax manager discovers the error. The person who should make the claim is Gerard Ltd and the person to whom the claim should be paid is the company that is the representative member at the time when the claim is paid even if that has changed since the claim was made - Gerard Ltd in this example.

This is so because Section 43 of the VAT Act 1994 deems the representative member to have carried on the business of all of the subsidiary members and to have made and received all supplies of goods and services made by or to them. Section 43 also holds the representative member responsible for the VAT affairs of every member of the group.

If a company that is now treated as a member of a VAT group discovers that it made an overdeclaration of its output tax liability before it became a member of the group, the claim should be made by that company using its previous VAT registration number and any payment arising out of the claim should be made to that company, not to the representative member of the VAT group. This will probably require a ‘manual’ payment to be made.

However, once the VAT group has been disbanded, the legal fiction created by Section 43 ceases to apply and the right to make the claim reverts to the company that actually made the overdeclaration ‘in the real world’.

Please remember that all subsidiary members of a VAT group are liable jointly and severally with the representative member for the period during which they were members of the group.