Changes to VAT Grouping Eligibility

Here, Andrew Young in our VAT team highlights proposed changes to VAT Groups, what they are and what entities are impacted.

Background

A VAT group is where a group of eligible businesses is treated as 1 taxable entity, rather than separate entities. In July 2018, the UK Government published draft legislation amending the eligibility criteria for VAT grouping. This legislation will come into effect once the Finance Bill 2018-19 receives Royal Assent.

Current Law

Current VAT group legislation states that to be eligible to become a member of a registered VAT group, one must be an established corporate body that has a fixed establishment in the UK as well as they must satisfy the control and the eligibility conditions outlined in the legislation. Only limited companies and LLPs can currently join VAT groups.

What is to change?

Under the new legislation non-corporate bodies such as individual sole traders and partnerships will be eligible to register as members of a VAT group so long as they can demonstrate that they control the corporate subsidiaries. Group members will still have to have a business establishment in the UK and be able to register for UK VAT.

Impact and Conclusion

The major impact will be that partnerships and individuals will now be able to benefit from the VAT grouping advantages already experience by VAT grouped business such as:

  • The representative member accounts for any tax due on supplies made by the group to third parties outside the group;
  • Qualifying individual sole traders and partnerships will no longer have to account for VAT on goods and services supplied between fellow group members;
  • One single VAT return needs to be submitted for the whole group.

A more detailed supplement to this article on the changes can be found here: https://www.gov.uk/government/publications/vat-grouping-eligibility-criteria-changes/vat-grouping-eligibility-criteria-changes

If you have any questions about this new legislation or other queries about VAT grouping in general, please contact our VAT Director, Iain Masterton, for further information at vat@chiene.co.uk or call 0131 558 5800.