V16.894 Eligibility rules for VAT grouping
Information Sheet 7/04, 23 July 2004
VAT grouping is a facilitation measure by which two or more bodies corporate can be treated as a single taxable person for VAT purposes. “Bodies corporate” includes companies of all types and limited liability partnerships. Supplies between group members are not subject to VAT. All supplies are treated as being made to, or by, the representative member of the VAT group. Under VATA 1994 s 43A the bodies corporate can form a VAT group if each has an establishment in the UK and they are under common control. “Control” for this purpose has a special meaning based on the definition of holding company and subsidiary in CA 1985 s 736. This definition of VAT group eligibility has been in force since 1999.
In a consultation document issued in December 2003, the Government made proposals to change the basic rule for VAT group eligibility to one based on consolidation in the corporate group's financial statements. This was intended to prevent a certain type of abuse, which allowed companies, which were run by and for the benefit of third party suppliers, to be in the same VAT group as their customers. Twenty businesses and professional and trade organisations responded. Most respondents accepted the need to act on the abuse, in order to create a level playing field, but they said that the changes went further than necessary to tackle the abuse and would create significant extra costs for VAT groups