VAT groups eliminate the need for VAT between group companies.
Some related companies or limited liability partnerships can register as a single taxable person – called VAT groups. Also, some unincorporated business units may be able to register as VAT divisions.
They must meet the following criteria:
- each body has its principal or registered office in the UK; and
- they are under common control, for example one or more companies are a subsidiary of a parent company.
If the turnover of the VAT group is over £10 million per year and the group is partly owned or managed by a third party, you can only register as a group for VAT if:
- no more than 50 per cent of benefits generated by the business go to third parties;
- your group uses consolidated accounting; and
- no third party consolidates your group into its accounts.
A VAT group is treated in the same way as a single taxable person registered for VAT on its own. The registration is made in the name of the ‘representative member’. The representative member is responsible for completing and submitting a single VAT Return and making VAT payments or receiving VAT refunds on behalf of the group. However, all the members of the group remain jointly and severally liable for any VAT debts.
The advantages of VAT group registration
- You don’t need to account for VAT on goods and services supplied between group members. This is especially useful if your accounting system is centralised.
- You only need to complete and submit one VAT Return for the whole group.
- The administrative burden, however, may be increased as you have to gather the required information from all the group companies within the time limits.