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VAT grouping eligibility extended

13 July 2018

Draft legislation has been published detailing plans to widen the eligibility rules for membership of a VAT group registration. In future, VAT grouping will not be restricted to incorporated entities - an individual or a partnership will be allowed to join a VAT group, provided it controls the companies with which it is grouped.

VAT grouping provides cash flow and administrative benefits by allowing connected entities to register for VAT under a single VAT registration number, account for VAT on a single VAT return and not charge VAT on supplies between group members. The current UK law only allows incorporated bodies (eg companies, LLPs and corporate General Partners) to join a VAT group. However, the 2015 European Court judgment in Larentia + Minerva found that this was too restrictive, prompting HMRC to consult stakeholders on how to reform the UK eligibility criteria in the light of this decision.

The precise date of implementation has not yet been confirmed (some time “after the date of Royal Assent to Finance Bill 2018-19”) but, once the new rules come into force, an individual or partnership may join a VAT group where it:

  • Has a business establishment in the UK
  • Is liable or entitled to be registered for VAT, and
  • Controls the corporate body or bodies it groups with as if it were their holding company (as defined in Companies Act 2006).

At this stage, HMRC asks for comments on the draft law, along with information from stakeholders on estimated take-up and the likely costs and savings arising from this change.

The Government appears to be pressing ahead with these EU-derived changes, according to its plan to treat CJEU judgments as legal precedents after Brexit unless and until it decides to replace them with UK law. However, the changes are modest and there will be no general expansion of VAT grouping to allow individuals or partnerships to join – only those that control one or more companies (broadly speaking, where they hold the majority of the voting rights in those companies) will be eligible. Out of those that qualify, the key beneficiaries will be businesses in VAT exempt sectors - VAT grouping will allow them to ignore VAT on intercompany charges, on which their recovery would otherwise be restricted.