As announced in the 2018 Budget, and after a long period of consultation HMRC have changed the criteria for joining a VAT Group so that, in some circumstances, individuals and partnerships can join a VAT Group. The changes took effect on 1 November 2019.
VAT Group registration – background
Corporate bodies (including limited companies and limited liability partnerships) that are in a group, as defined by the Companies Act, may apply for a group VAT registration. Note that it is not necessary for all the companies in the statutory group to join the VAT group. In addition, corporate bodies that are under common control are also eligible for group registration. “Control” is as defined in the Companies Act. The advantage of a group VAT registration is that transactions between the members of the VAT group are disregarded for VAT purposes.
Individuals and partnerships
Before 1 November 2019 only corporate bodies could be members of a VAT group but now individuals and partnerships may join a VAT group with corporate bodies that they control.
However, there are two further conditions:
- The individual or partnership must be making supplies in its own right (unlike corporate bodies, which may join a VAT group if they are non-trading or are dormant); and
- The individual or partnership is established, or has a fixed establishment, in the UK in relation to making those supplies.
A partnership controls a corporate body and, from 1 November 2019, may join a VAT group with a corporate body it controls, only if the controlling interest in the corporate body is held as a partnership asset.
If the interest is held by the partners as individuals it is not deemed to be held by the partnership and so the conditions for “control” are not met.