Should you register a VAT group?

In this article we will discuss VAT groups, what they are, the pros and cons and how you can register them.

What is a VAT group?

A VAT group is where a number of connected persons are registered for VAT and treated as one entity. One of the members is the designated member and is treated as making and receiving supplies on behalf of the entire group.

Eligibility criteria

Before deciding whether you should form a group, you need to check you can. There are a number of criteria that must be met.

• Someone must control all of the members in the group. This person does not need to be in the VAT group themselves.
• Each member must have a permanent or fixed establishment in the UK.

Advantages of VAT group registration

There are several advantages of registering a VAT group, these include:

• Only one VAT return needs to be filed.
• Supplies between group members are ignored. This can be beneficial for certain groups of companies that are required to restrict VAT recovery e.g. care homes, nurseries, financial service providers etc.

Disadvantages of VAT group registration

However, there are also disadvantages, these are:

• The group is treated as one person so are less likely to be able to take advantage of special schemes such as cash accounting, annual accounting and the flat rate scheme.
• The group is more likely to have to make payments on account, i.e. monthly rather than quarterly.
• The group is more likely to be classified as a large trader with increased scrutiny from HMRC.
• All members are jointly and severally liable for any debts.

Should you register a VAT group?

If there are a number of businesses who cannot recover all of their VAT and there are also inter-company charges then a group registration is a good idea. HMRC even allow companies to register as a group where they don’t make any taxable supplies outside of the group to avoid unnecessary VAT leakage.

In other circumstances, the decision may not be as clear cut. To help determine this, ask the following questions:

• Do some of my associated companies incur irrecoverable input tax VAT?
• Is a management company included in a group structure that recharges salaries to entities that cannot recover some or all of the VAT incurred?

How to register a group?

Unlike a standard, single VAT registration where the registration date can be a much earlier date, to register a group an application must be sent to HMRC within 30 days of the formation of the group and its requested registration date. Patience is required here as there can be long delays and HMRC apply the 30 days strictly so, do not delay if you want a specific date.

The VAT application will be submitted in the name of the designated/representative member but, you will need to provide:

• Details of the ‘controlling body’.
• Trading activities company and UTR information on all the other members should be entered on a form VAT 50/51 that will be uploaded with the online VAT application.
• Take a copy of the information included on the VAT application and VAT 50/51 as well as a copy of the VAT registration application reference.

Summary

Forming a VAT Group can be very beneficial. While there are downsides, if there are a number of connected businesses who share resources a VAT Group is almost always very beneficial

For further guidance in forming a VAT group, speak to our expert team today by emailing us at vat@geraldedelman.com.

Last updated: 20.12.2024