A VAT group is a special arrangement where two or more entities can elect to be treated as a single taxable person for VAT purposes. When a VAT group is set-up one of the VAT group members is nominated as the representative member. The representative member must account for all the group company activities and declare output tax and input tax on one VAT Return as well as making and payments due.
Only limited companies and Limited Liability Partnerships can members of a VAT group.
VAT Group Advantages
There are many benefits to being a member of a VAT group including:
- Only one VAT return and one payment needs to be processed. This is especially useful for businesses with a centralised accounting function.
- Intra VAT group transactions are usually ignored for VAT purposes. This is a very useful feature of VAT groups and often one of the main drivers for a business to set up a VAT group registration. This has both a cashflow benefit and also creates a real cash saving for taxable supplies made to partially exempt VAT group members.
- The VAT group members do not have be involved in the same type of business.
VAT Group Disadvantages
- It can be difficult for companies to gather all the necessary information from all group members to ensure that a VAT return is properly complete and submitted on time. There is a process known as Divisional VAT registration which addresses some of these issues.
- The VAT limits apply to the VAT group as a whole. This includes error reporting, cash accounting and partial exemption.
- All members of the VAT group are jointly and severally liable for any VAT debts of the group.
- A new VAT registration number is issued when a VAT group is set-up and the old VAT registration numbers of all the group members no longer apply.
- There are some exceptions to the intra VAT group rules for certain international services known as the intra-group reverse charge.
If you have any queries please call.
Lesley Malkin, Audit Partner