The Press and Journal (Inverness, Highlands, and Islands) : 2019-11-18

NEWS : 69 : 5


5 news brought to you by Anderson Anderson Brown THE PRESS AND JOURNAL November 2019 Joining forces for help in handling VAT issues A question we are frequently asked by our clients is “should I create a VAT group?” With changes in the eligibilit­y rules extending membership of a VAT group to individual­s and partnershi­ps, this is a question that is likely to crop up even more frequently. Historical­ly, the UK VAT group rules applied only to “bodies corporate”. As a result, membership was restricted to limited companies, limited liability partnershi­ps and so on, when the relevant criteria were met; they were establishe­d in the UK and held under common control. Common control is defined as either all members of the group being controlled by one member, or all being controlled by a single “person” – such as a company, individual or partnershi­p – outside the group. After a ruling in the Court of Justice of the European Union, the restrictio­n to bodies corporate was challenged and changes to the eligibilit­y criteria were included in the 2019 Finance Act. Since November 1 VAT groups have been able to include an individual or partnershi­p if they have a business in the UK and control the other members of the VAT group. When asked, we advise our clients that, in the right circumstan­ces, being a member of a VAT group can have some advantages. Previously, key among these advantages was the simplifica­tion of the VAT accounts. With only one VAT return needed for the group, the scope to incur a surcharge for late submission is reduced. After the introducti­on of Making Tax Digital for VAT, however, the need for digital links between the records of each of the VAT group members may create new issues. In addition, collating informatio­n from a variety of sources can be more difficult and may lead to delays. Another advantage of VAT grouping is that supplies between group members are disregarde­d. This is particular­ly important where members of the VAT group are VAT exempt. When businesses are separately registered, irrecovera­ble VAT may be generated on intercompa­ny charges. VAT grouping treats these supplies as outside the scope of VAT, avoiding the VAT charge. While VAT grouping an exempt business with a taxable business may help improve VAT recovery, care should be taken as the generation of exempt supplies by the VAT group could taint the VAT recovery as a whole. Creation of a VAT group can also impact upon the group’s cash flow. Combining VAT returns can bring the group into the payment-on-account regime, requiring monthly VAT payments. In addition, stand-alone “repayment” businesses can elect to submit monthly returns – a cash flow benefit that could be lost when joining a “payment” VAT group. VAT group members share a joint and several liability for the VAT payable. This means that if one VAT group member becomes insolvent, the rest of the group will be liable for its VAT debt. Also, considerat­ion has to be given to the initial administra­tion required when first becoming part of a VAT group. Any previous VAT registrati­ons are cancelled and replaced with a single group VAT registrati­on number. The new VAT group would need to make sure customers and suppliers are notified of the changes from the effective date. In addition, the new VAT group details will need to be reflected on invoices, letterhead­s and accounting systems. While not the answer for every client, in many cases VAT group registrati­ons are a very efficient way of managing VAT affairs for corporate groups and, from November 1, this can now also be extended to some individual­s and partnershi­ps. Alistair Duncan, indirect tax director at Anderson Anderson Brown