V2.190B Group registration—anti-avoidance and control
FA 1996 introduced new anti-avoidance provisions1 to counter the alleged abuse of VAT group treatment. These provisions target the sort of schemes that rely on the ability to move individual companies in to and out of a group ('entry' and 'exit' schemes), resulting in the group, or associate companies, being able to take full or enhanced input tax deduction to which they would not otherwise have been entitled2.
A statement of practice has also been made by HMRC, outlining the circumstances under which it will and will not invoke the provisions3.
It has been held that the grouping provisions are designed to simplify and facilitate the collection of tax, not to confer exemption or relief from tax. In Thorn Materials Supply Ltd and Thorn Resources Ltd there was, therefore, no warrant for a part payment made between two group companies to be permanently excluded from the charge to VAT4.
Entry schemes and exit schemes targeted by VAT group anti-avoidance measures
A typical entry scheme would involve the supplier acquiring goods and services, and recovering the associated VAT before moving the assets into the user's business (either by transferring the assets to another company in the user's VAT group or by joining the group itself). A common feature of such schemes is that periodic payments due from the user under the contract are staged so as to ensure that the greater part falls due when supplier and user are within the same VAT