On 6 July HMRC released a policy paper and draft legislation which pave the way for an extension of the scope of VAT grouping.
Currently only corporate bodies can form VAT groups and non-corporate entities, such as partnerships and individuals, are unable to do so. However, it has been clear for some time that the UK is failing its current EU obligations by effectively maintaining a blanket exclusion on joining VAT groups for all non-corporate persons.
The detailed proposals that have now been published follow a period of consultation, responses to which HMRC collated and published in December 2017. They are set to permit an individual or partnership to form a VAT group with its corporate subsidiaries, providing the following conditions are met:
it controls the corporate body or all of the corporate bodies in the VAT group;
it has a business establishment in the UK; and
it is liable or entitled to register for VAT (under the registration provisions relating to UK establishments).
Practical implications: There’s no doubt that the proposed changes will provide greater scope for VAT grouping but that doesn’t necessarily mean that qualifying individuals or partnerships will be clamouring to become group members when the rules come into force.
There are well documented pros and cons to VAT group membership. Chief amongst the cons is the fact that all group members are jointly and severally liable for the group’s VAT debts. For individuals and partnerships considering joining VAT groups the added dimension of personal risk this potentially creates is likely to give considerable pause for thought.
It also appears from the wording of the draft amending legislation that there are important limitations to the extension of VAT grouping which merit highlighting.
Firstly, there seem to be limits on the kinds of non-corporate bodies that will benefit from the proposed changes. The draft legislation refers only to individuals and partnerships and it seems reasonable to assume that other types of non-corporate bodies such as unincorporated associations will remain unable to form groups with any corporate subsidiaries they may have (although there is some ambiguity in the explanatory notes and further clarification by HMRC would arguably be of assistance).
In addition, the drafting of the proposed changes does not entertain the possibility of a partnership and individual both joining the same VAT group. Rather, they would only be entitled to form VAT groups with corporate bodies which they control.
Moreover, one of the conditions that will be a prerequisite of grouping for an individual or partnership is that it is liable or entitled to register for VAT in its own right. This would represent a further limitation on grouping which would be unique to non-corporate bodies.
Whilst grouping may not always be desirable, the increased flexibility which the proposals present for some individuals and partnerships is still to be welcomed even if many will wish they went further and addressed concerns over joint and several liability. They should level the playing field to some degree by allowing qualifying individuals and partnerships to weigh up the advantages and disadvantages of grouping to make an informed decision as to whether it is right for them.
Home >Articles > The extension of the VAT grouping rules
The extension of the VAT grouping rules
On 6 July HMRC released a policy paper and draft legislation which pave the way for an extension of the scope of VAT grouping.
Currently only corporate bodies can form VAT groups and non-corporate entities, such as partnerships and individuals, are unable to do so. However, it has been clear for some time that the UK is failing its current EU obligations by effectively maintaining a blanket exclusion on joining VAT groups for all non-corporate persons.
The detailed proposals that have now been published follow a period of consultation, responses to which HMRC collated and published in December 2017. They are set to permit an individual or partnership to form a VAT group with its corporate subsidiaries, providing the following conditions are met:
it controls the corporate body or all of the corporate bodies in the VAT group;
it has a business establishment in the UK; and
it is liable or entitled to register for VAT (under the registration provisions relating to UK establishments).
Practical implications: There’s no doubt that the proposed changes will provide greater scope for VAT grouping but that doesn’t necessarily mean that qualifying individuals or partnerships will be clamouring to become group members when the rules come into force.
There are well documented pros and cons to VAT group membership. Chief amongst the cons is the fact that all group members are jointly and severally liable for the group’s VAT debts. For individuals and partnerships considering joining VAT groups the added dimension of personal risk this potentially creates is likely to give considerable pause for thought.
It also appears from the wording of the draft amending legislation that there are important limitations to the extension of VAT grouping which merit highlighting.
Firstly, there seem to be limits on the kinds of non-corporate bodies that will benefit from the proposed changes. The draft legislation refers only to individuals and partnerships and it seems reasonable to assume that other types of non-corporate bodies such as unincorporated associations will remain unable to form groups with any corporate subsidiaries they may have (although there is some ambiguity in the explanatory notes and further clarification by HMRC would arguably be of assistance).
In addition, the drafting of the proposed changes does not entertain the possibility of a partnership and individual both joining the same VAT group. Rather, they would only be entitled to form VAT groups with corporate bodies which they control.
Moreover, one of the conditions that will be a prerequisite of grouping for an individual or partnership is that it is liable or entitled to register for VAT in its own right. This would represent a further limitation on grouping which would be unique to non-corporate bodies.
Whilst grouping may not always be desirable, the increased flexibility which the proposals present for some individuals and partnerships is still to be welcomed even if many will wish they went further and addressed concerns over joint and several liability. They should level the playing field to some degree by allowing qualifying individuals and partnerships to weigh up the advantages and disadvantages of grouping to make an informed decision as to whether it is right for them.
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