VAT Group Registration (UK)

Who can be in a VAT group

Notice 700/2 lists the eligible persons as “bodies corporate, individuals, partnerships and Scottish partnerships,” and says bodies corporate include companies of all types and limited liability partnerships. Under section 43A of the VAT Act 1994, bodies corporate can form a group if each is established or has a fixed establishment in the UK, they are under common control, and they meet the extra conditions for specified bodies where those apply. The notice says all its references to the UK include the Isle of Man.

The control condition is that all members are controlled either by one member of the group or by a single other person outside it. You control a member if you are its parent company under section 1159 of and Schedule 6 to the Companies Act 2006, would be its parent if you were a company, or are empowered by statute to control it. Section 1159 makes a company a subsidiary if, among other tests, its parent “holds a majority of the voting rights in it.” Notice 700/2 is blunt about the alternative: “If you cannot meet these conditions you will not be able to register as a group.”

Individuals and partnerships can join under sections 43A and 43AZA if they control the UK body corporate, or all of the UK bodies corporate, in the group, carry on a business by making supplies, and are established or have a fixed establishment in the UK for that business. An individual is established where they are resident for income tax purposes.

The establishment test is where foreign-owned structures need care. Notice 700/2 defines an establishment as the place where “essential day-to-day decisions concerning the general management of the business are taken,” and says “A registered office alone is not sufficient to create an establishment.” A company does not have a fixed establishment in the UK just because it is incorporated with its registered office there, or has a simple brass plate presence or a UK based agent, and a fixed establishment must be capable of making supplies, not just receiving them. Notice 700/11 draws the conclusion for foreign businesses directly: “If you’re a non-established taxable person (NETP), you cannot join a VAT group.”

Two further limits. Since 22 July 2004 an eligible person may only be in one VAT group at a time. And since 1 August 2004, “specified bodies” must pass two extra tests, a benefits condition and a group accounts consolidation condition, which Notice 700/2 says “only affects VAT groups with a turnover over £10 million per year.”

The representative member and joint and several liability

For VAT the group acts through the representative member. Notice 700/2 says goods and services supplied to any member by a third party “are treated as having been made to the representative member,” and supplies made by any member to a third party are treated as made by the representative member. The representative member accounts for VAT on the group’s sales to third parties, sends the single return, and pays the VAT or receives any repayment.

That puts the reporting burden on the representative member and the information burden on everyone else. The notice says “you will need to make sure that the representative member has all the necessary information to send a VAT Return for the group by the due date.” Errors work the same way: the person completing the group return must be told of any misdeclarations by other members and either enter the amount on the group’s VAT account or make a single voluntary disclosure for the whole group. The voluntary disclosure limit applies to the group as a whole. For late submission penalties, the representative member “has a single liability for these points covering the whole group.”

The liability, though, is not the representative member’s alone. Notice 700/2 says: “If the representative member is unable to meet a debt of the group each member will be held liable for the full amount of the debt until it is discharged. A former member of a VAT group will be held liable for tax that was due during a period of membership.” Before a company with outside lenders or minority shareholders joins a group, that exposure belongs in the conversation.

Several thresholds are measured at group level too. The partial exemption de minimis limits, the cash accounting limits and the payments on account limits all apply to the group as a whole, not to members individually. For payments on account, the notice says “It’s the VAT liability of the group as a whole that determines inclusion within the scheme.”

Supplies between members, and the exceptions

The general rule is that supplies of goods or services between members of the same group are disregarded for VAT. No VAT is charged and no VAT invoices are issued for them. A management fee from a parent to its subsidiary, or a shared services company recharging staff costs, normally carries no VAT inside the group.

The disregard has exceptions, and Notice 700/2 names them. First, the section 43(2A) intra-group charge: when a UK group acquires certain services through an overseas establishment of one of its members and they are used to make a supply to the UK establishment of another member, a VAT charge “also known as a ‘reverse charge’” is due so the services are taxed in the UK. It covers bought-in services such as software and IT costs, telecoms, consultancy and marketing, received under the general place of supply rule. HMRC treats the charge as trifling where the output tax on the bought-in services is less than £7,500 a year for the group.

Second, the Skandia judgment. Where a member has an overseas establishment that is VAT grouped in a country with “establishment only” grouping rules, services between that establishment and the UK side of the group are treated as supplies to or by another taxable person and VAT is accounted for accordingly.

Third, goods and Northern Ireland. Where goods supplied between members move from Great Britain to Northern Ireland, VAT is due in the same way as when a business moves its own goods. Where goods located in Northern Ireland are supplied between members, the disregard applies only if both members are established, or have a fixed establishment, in Northern Ireland. Otherwise the representative member accounts for the VAT.

Finally, input tax. Recovery depends on how the group as a whole uses what each member buys. Notice 700/2 gives the example of one member leasing computer equipment to another that uses it to make exempt supplies to outside customers: the input tax is attributable to exempt supplies and restricted, subject to the de minimis limits.

Applying, joining, leaving and HMRC’s powers

You apply by registering for VAT online and uploading form VAT50/51 with the application, which must be signed or submitted by the representative member. An accountant acting for the group needs form VAT53. The application normally takes effect from the date HMRC receives it or a later date you specify. HMRC writes within 40 working days to confirm the date of receipt, and has 90 days from receipt of a complete application to make enquiries and may reject it. While you wait, the notice says to “treat the application as provisionally accepted on the day it is received by HMRC and account for VAT accordingly.” Backdating is normally limited to 30 days before receipt, and only to the start of a current accounting period of the group or of a person forming, joining or leaving it.

HMRC will refuse an application if the conditions are not met. It may also refuse an application to form, change or disband a group for the protection of the revenue where allowing it “would give rise to concerns over the safe collection of revenue due,” would facilitate VAT avoidance, or where the revenue loss goes beyond the normal operation of grouping. Notice 700/2 defines that revenue loss as “the VAT that is not charged when one company in a group sells to another company in the same group,” which matters most where members make exempt supplies. HMRC weighs the effect of refusal on the business against the likely revenue loss, following the National Westminster Bank decision, and says it will usually not use these powers if the revenue loss follows from the normal operation of grouping. A refused application is treated as if it had never been allowed, and the decision can be appealed to a tribunal.

After registration you can add members, remove members, change the representative member, or disband the group. HMRC’s registration guidance says you can disband online, but other changes go by post on VAT50/51, with VAT56 to change the representative member. If a member stops meeting the conditions, notify HMRC within 30 days. HMRC can direct its removal under section 43C(3) of the VAT Act 1994, with effect no earlier than the date it ceased to be eligible, and under section 43C(1) can remove a member whose continued inclusion presents a risk to the revenue. When HMRC uses its revenue protection powers, it removes only the members necessary and does not disband the whole group unless the group has only 2 members. On disbanding, the group number is cancelled and members still liable to register need new numbers.

Divisional registration: the reverse arrangement

A VAT group is several legal entities under one number. A divisional registration is one legal entity under several numbers. Notice 700/2 describes it as letting a corporate body that “carries on its business through a number of self-accounting units” register each unit separately, each with its own VAT number and its own returns.

It is harder to get. Only bodies corporate can register in divisions, and approval depends on HMRC being satisfied “that there would be real difficulties in submitting a single VAT Return for the corporate body as a whole within 30 days of the end of your tax period.” Every division must be registered, even those below the threshold, each must be an independent unit with its own accounting system, all must use the same tax periods, and the corporate body must be fully taxable, or treated as fully taxable under the de minimis limits.

The liability position mirrors grouping from the other side. The company is still a single taxable person and “remains liable for the VAT debts of all the divisions,” and supplies between its divisions are not supplies for VAT, so no tax invoices are issued for them. The two arrangements cannot be combined: a company in a VAT group cannot register a division outside it, and a company registered in divisions must cancel all of them before it can join a group.

Worked example: three companies, one return (illustrative)

The figures below are round, illustrative numbers, not a template for any real group. Assume every sale to customers is standard rated at the UK standard rate of 20%, and all three companies are UK established and under common control.

HoldCo Ltd is the representative member. It charges a £50,000 management fee to AppCo Ltd in the quarter and has £1,000 of input VAT on its own costs. AppCo Ltd sells subscriptions to UK customers through its own Stripe account: £100,000 net, so £20,000 of output VAT, and it has £4,000 of input VAT on its purchases. ShopCo Ltd sells £40,000 net, so £8,000 of output VAT, with £2,000 of input VAT.

The management fee is a supply between members, so it is disregarded: HoldCo issues no VAT invoice for it and it carries no VAT. The group return shows output VAT of £28,000 (£20,000 plus £8,000) and input VAT of £7,000 (£1,000 plus £4,000 plus £2,000). HoldCo pays HMRC £21,000.

The members’ own positions still have to add up to that figure. AppCo’s net is £16,000 owed, ShopCo’s is £6,000 owed, and HoldCo’s is £1,000 to recover: £16,000 plus £6,000 minus £1,000 is £21,000. If the members each held their own registration, there would be three returns and three payments. In the group there is one, but every member is liable for all £21,000 if HoldCo does not pay.

What it means for your QuickBooks files

A VAT group changes the VAT registration, not the legal entities. Each company still keeps its own accounts, so a common setup is one QuickBooks Online file per company, with each file recording that company’s own sales and output VAT and its own purchases and input VAT. The VAT number on each company’s invoices, including any its Stripe account issues, is the group number, because all members use it.

The single return is where the books have to meet. A bookkeeper would typically close each member’s VAT balance for the period into an intercompany account with the representative member, and post the matching entries in the representative member’s file to its VAT liability account. In the example above, AppCo moves £16,000 and ShopCo moves £6,000 to HoldCo through intercompany, HoldCo’s own £1,000 to recover nets against them, and HoldCo’s VAT liability account then shows the £21,000 that goes on the return and is paid to HMRC. Intercompany balances should agree between files each period.

Intra-group charges need their own treatment. Because disregarded supplies carry no VAT, an intercompany management fee should be recorded without VAT in both the charging and the receiving file. If a section 43(2A) charge applies, the group accounts for it as output tax on the group return, and your adviser should confirm how it is calculated.

Keeping Stripe activity per legal entity, with one Stripe account per company, is what keeps the per-member figures traceable. Each company’s payouts, fees and VAT then reconcile inside its own file, and the representative member can trace every pound on the group return back to the company that collected it. Mixing two members’ sales in one Stripe account makes that split a manual allocation every quarter, and Notice 700/2 says the group must make sure the representative member has all the information it needs to file by the due date.