ATXP6 UK
Syllabus A6. Value Added Tax A6a. The VAT registration requirements

A6a. Conditions for companies to be treated as VAT group

Syllabus A6a)

The VAT registration requirements

VAT registration requirements

Conditions:

  1. 2 or more companies must be associated with each other. 

    That is one company must own 51% or more of the share capital in another company, or 2 companies must be under common control.

  2. All companies must be UK resident or trading from a permanent establishment in the UK.

Consequences of Group Registration:

  1. The VAT Group is treated for VAT purposes as a single company registered for VAT on its own.

  2. There will be 1 VAT registration number for the whole group.

  3. One VAT return will need to be filed on behalf of the whole group.

  4. The group must have a representative who fills in the VAT return. 

    This member will have to gather all of the output and input VAT of the individual members and fill it in on one return. 

    This representative is also responsible for paying VAT on behalf of the group.

Advantages of a VAT Group:

  1. There is no VAT on intra-group supplies

  2. Only one return must be filed, therefore administration costs will be saved.

Disadvantages of a VAT Group:

  1. All members remain jointly and severally liable

  2. A single return may cause administration difficulties in collecting and collating the information

  3. There are special VAT schemes for businesses such as the cash, annual and flat rate schemes. 

    To enter into these schemes, a business must have a turnover under a certain limit. 

    Since a VAT group is treated as a single company, the whole VAT group’s turnover will be considered in comparison to the limit, when one company in the group is trying to enter into the scheme.

    Thus, it is unlikely that a company in VAT group will be eligible to enter into such schemes, whereas if they were not in the VAT group, they would be more likely to qualify. 

    For example, there is a VAT group with 4 companies (A Ltd., B Ltd., C Ltd., and D Ltd.). 

    The annual turnover of the entire group is £5,400,000, and each individual company’s annual turnover is £1,350,000. 

    B. Ltd. wants to enter into the cash accounting scheme, the company’s individual turnover is within the limit of £1,350,000, however it cannot enter the scheme because the VAT group’s annual turnover of £5,400,000 will be considered instead of individual company turnover and B Ltd. will not qualify.

Illustration

Jay owns shares in a number of companies set out below

60% in A Ltd., and 80% in B Ltd.

B Ltd owns 80% in C Ltd and 51% in G Inc. (An overseas company)

Which of the above companies can be in a VAT group?

Solution:

A Ltd., B. Ltd., and C. Ltd can be in a VAT Group.

This is because Jay effectively owns more that 50% of the shares in each of them and they are trading from a permanent establishment in the UK. 

However, G Inc. is not trading from a permanent establishment in the UK and can therefore not be included in the group.