All together now
For VAT purposes, each business is generally individually responsible for its own affairs. This means that a person in business as a sole trader, a member in a partnership and the sole director/shareholder of a company may need to manage three separate VAT registrations, as each business is a separate entity for VAT purposes. This can be especially burdensome where there is a high level of intra-entity supplies.
VAT groups
To simplify such situations, two or more entities can notify HMRC that they wish to form a VAT group ( VATA 1994, s. 43 ). Any members within the group are then effectively treated as a single entity for VAT purposes, with each becoming jointly and severally liable for any VAT payable by the group.
This is achieved by treating all supplies made and received by any member of the group as if it was made or received by a ‘nominated representative member’, rather than the member itself. Any supplies made by one member to another are then generally disregarded, as the rules mean the representative member is in effect making the supply to itself.
| Example
Ava Ltd and Nathan Ltd form a VAT group. Nathan supplies standard rated widgets to Ava for £100,000 and Ava sells these widgets to a customer for £150,000 (net). As they are within a VAT group, a single VAT return showing £150,000 of taxable supplies and £30,000 of VAT is submitted to HMRC. |
There are exceptions to the general disregarding of internal supplies rules, as set out in s. 43(2A) onwards. These normally apply where a group acquires certain services via an overseas establishment of a group member; where applicable, the group must charge itself output tax, which can be recovered subject to any partial exemption considerations.
An entity can only be a member of a single VAT group at any one time.
Eligibility
Both incorporated and unincorporated entities can be members of a VAT group, but the eligibility conditions differ depending on the entity type and there must always be at least one corporate member.
Two or more bodies corporate, which would include both companies and Limited Liability Partnerships (LLPs), can be within a group if they are each established, or have a fixed establishment, in the UK (see VGROUPS02400 ), and:
(1)one controls the other(s); or
(2)one person (individual or corporate) controls all of them; or
(3)two or more individuals acting in partnership control all of them.
A body corporate controls another if either:
(1)the first entity is empowered by statute to control the second’s activities; or
(2)the first is the holding company of the second (as defined by CA 2006, s. 1159 ).
Notably, the controlling entity need not be UK established, but such an entity could not then be a member of the group. There are also additional requirements which must be met where the body corporate is a ‘specified body’, as defined at VGROUPS03170 (see also VGROUPS02300 ).
An individual, or two or more individuals in partnership, carrying on a business can be within a group with one or more bodies corporate if the individual/partnership:
(1)controls the body/bodies corporate; and
(2)is established, or has a fixed establishment, in the UK in respect of that business.
An individual or partnership controls a body corporate where it would be the holding company of the body corporate, were the individual/partnership itself a body corporate.
| Example
Caleb, a sole trader, holds 60% of the voting shares in Kyoko Ltd. As this is the majority of the voting rights Caleb, were he a company, would meet the conditions to be a holding company in s. 1159(1)(a) and so has control of Kyoko. The sole trade and the company can therefore form a VAT group. |
| Example
Katya GmbH, a German company with no UK establishment, holds 100% of the shares in Jasmine Ltd and Jade Ltd. As Jasmine and Jade are under common control, they can form a VAT group. However, Katya cannot be part of the group, due to its lack of a UK establishment. |
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Forming and altering a group
A VAT group is formed by a prospective member or the person controlling the group ( VATA 1994, s. 43B(3) ) submitting form VAT50/51. The form can either be submitted to HMRC on its own or can accompany a VAT registration application. Alternatively, the form can be submitted by an agent, provided form VAT53 is also completed and submitted.
Once the form(s) is submitted, HMRC state that the group should assume its application was successful unless told otherwise, so it can apply the group rules immediately. In due course, HMRC will contact the representative member to confirm the group VAT number, which must then be used for all supplies; any existing VAT numbers held by members on joining the group will be cancelled.
The effective group registration date can be up to 30 days prior to the form being received by HMRC, provided it coincides with the start of a VAT period for any of the group members. Further backdating is possible, but requires HMRC approval.
| Example
Jay Ltd owns 100% of the shares of Lily Ltd and Amber Ltd, with VAT periods commencing 1 August, 1 September and 1 October respectively. A group application is received by HMRC on 10 September; the effective date could either be 1 September, 10 September, or a later date as agreed with HMRC. |
Form VAT50/51 can also be used to add/remove an entity from an existing group, or disband it altogether. Any entity leaving the group will then need to consider its turnover position and register of its own accord as necessary.
| Example
Machina Ltd leaves a VAT group on 1 April 2026. Its taxable turnover for the following 30 days is expected to be £100,000; it must therefore register for VAT before 30 April, with an effective date of registration of 1 April. |
Other matters
As a group is treated as a single VAT entity, any partial exemption considerations will be based on supplies made by the group as a whole, but only in so far as the supplies are made to external customers. Supplies made between group members do not affect the partial exemption position of the group.
| Example
Daneel Ltd and Giskard Ltd are registered as a VAT group. Daneel makes taxable supplies to customers outside the group and exempt supplies to Giskard; Giskard only makes taxable supplies to non-group customers. The group is fully taxable and therefore does not need to adjust its input tax recovery, despite the intra-group exempt supplies. |
When considering penalties, the representative member accrues points where a return is submitted late and these transfer if the representative member changes. Points attached to members joining the group do not affect the group total, and an entity leaving the group will have a ‘clean slate’ if it subsequently registers in its own right, regardless of whether the group had points when it left.
Conclusion
Where multiple entities are under common control, and particularly where there is a high level of intra-group supplies, s. 43 can simplify the VAT admin requirements significantly. However, the members must remember that they will be responsible for any VAT payable while they are within the group, even if they have since left.
Useful links
For commentary on VAT group registration, see Quick Overview from ¶71021.
If you have any comments on this article, please e-mail the editorial team at tax-weekly@croneri.co.uk.
Document downloaded on 04-03-2026 from Croner-i Navigate, the UK’s leading online research service for tax, audit and accounting professionals. Find out more at www.croneri.co.uk or call 0800 231 5199.
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