Advantages And Disadvantages of VAT Grouping

The UK currently only allows ‘corporate’ entities to form a VAT group, but following an EU challenge it seems likely that the government will soon extend that facility to non-corporates, such as partnerships.

So is this something you should consider now?

In the right circumstances, being a member of a VAT group can confer the following advantages:


  • Simpler VAT accounting; eg, there is only one return to prepare and file
  • Supplies between members are ‘outside the scope of VAT’ so there can be no issue of unrecoverable VAT on inter-company transactions
  • It is possible to include a company that makes ‘exempt’ supplies in the group and this could improve VAT recovery


However, we should not all rush at once to form VAT groups. The advantages referred to above can easily become disadvantages in other circumstances; for example:


  • Including an exempt company in a group will make the group ‘partially exempt’, and this could restrict recovery of input tax, so the VAT cost could actually increase
  • It can be difficult to collect data from all companies in order to prepare the return. If the return is late as a result the penalties for late filing will be on VAT due for the whole group and can therefore be substantially higher


There are also other potential disadvantages such as:


  • Joint and several liability for the VAT payable. That means if one company becomes insolvent the rest of the group will nevertheless be liable for its VAT debt
  • Non VAT group companies can benefit from a cash flow benefit; eg, a ‘repayment trader’ could make monthly returns if it is not part of the group


If you would like to arrange a meeting to discuss and consider whether group registration would be beneficial for your business please give us a call.


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