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HMRC internal manual

VAT Refunds

HM Revenue & Customs
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Late claims for input tax: Who can claim: VAT Groups

Where an underdeduction of input tax is made by a member of a VAT group, the entitlement to claim remains with that VAT group 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 underdeducted by a member of a VAT group is the representative member of the VAT at the time when the claim is made.

For example, in a group consisting of Afula Ltd, Binyamina Ltd, Carmel Ltd, Dalya Ltd and Eretz Ltd, Afula Ltd is the representative member. Binyamina Ltd, Carmel Ltd, Dalya Ltd and Eretz Ltd are subsidiary members.

Carmel Ltd underdeclares his input tax entitlement and that is reflected in the return rendered by Afula Ltd in its capacity as representative member. Shortly afterwards, Afula Ltd and Carmel Ltd leave the VAT group and are replaced by Frans Ltd and Gedera Ltd.

Gedera Ltd takes over as the representative member. A couple of years after the underclaim was made, the group’s tax adviser discovers the error. The person who should make the claim is Gedera Ltd and the person to whom the claim should be paid is the company that is the representative member of the group at the time when the claim is paid even if that has changed since the claim was made.

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 has understated its input tax entitlement in an accounting period 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.

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 taxable purchases in the course and furtherance of its business.