What is a VAT group?
A VAT group allows two or more corporate bodies to account for VAT under a single registration number, with one of the companies acting as the representative member. The registration is in the name of the representative member, which is responsible for completing VAT returns and paying and reclaiming VAT on behalf of all of the other members of the group.
A single VAT return is completed each period for the entire group, as opposed to the separate companies submitting individual returns. Supplies of goods or services between the members are not subject to VAT.
All supplies of goods and services made by any group member to third parties outside the group are treated as having been made by the representative member. Similarly, any supply of goods or services received from a third party outside the group to any member of the group is treated as having been supplied to the representative member.
Under existing legislation, grouping is permitted if the ‘control’ tests are met. Bodies corporate can form a VAT group if:
- Each is established or has a fixed establishment in the UK; and
- They are under common control
‘Control’ has a specific meaning based on the definition of a holding company and subsidiary in section 1159 of and Schedule 6 to the Companies Act 2006.
Changes to legislation
Up to now only corporate bodies were able to form a VAT group (mainly companies and LLPs). From 1 November VAT grouping is available for all entities, including; partnerships, sole traders and trusts in certain cases. Non-corporate entities can now join a VAT group if they meet all of the following conditions:
- They are established, or have a fixed establishment in the UK;
- They can demonstrate that they control all corporate body subsidiaries in the group. The test will apply assuming the non-corporate entity would pass the control test if it was a corporate body, e.g. usually meaning holding 51% or more of share capital in the relevant company/companies;
- They can demonstrate that they are entitled to VAT registration independently of any other business (the change here is that a body corporate can be included in a VAT group if it is not trading, nor intends to trade).