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Group Therapy

One of the questionable delights of tax is the way in which simple terms have different meanings for different taxes (and often indeed for different purposes within the same tax). Take groups, for example. For VAT purposes groups have some unusual characteristics.

For one thing, unlike Income and Corporation Tax, LLPs (but not partnerships) are treated for VAT purposes as bodies corporate and so are eligible to be treated as members of a group if the other conditions are fulfilled.

For another, in contrast to every other definition of group that we know, there is no requirement for VAT purposes for control by a single holding company. Single companies, LLPs, and foreign bodies corporate can be registered together as a VAT group even if they are not in a corporate group structure. Thus, a client may control one company and have a majority share in an LLP. Those entities may be grouped if desired. He could similarly group two companies together if he (or in some circumstances a group of joint shareholders) controls both companies.

Thirdly, unlike for Corporation Tax (where membership of a group is automatic if the conditions are fulfilled) entities are members of a VAT group only if a request is made for that treatment to apply (and only if the anti-avoidance rules are not breached).

VAT grouping could be useful for example

if one member of the group loses a lot of VAT through partial exemption rules. Grouping could have the effect of increasing the overall recovery.
if HMRC are slow to repay to a net reclaiming company. Grouping with a net paying company could effectively secure an earlier internal repayment.
to avoid having to account for VAT on management charges and the thorny problem of recharging staff with multiple roles.
in providing some small administrative savings with only one VAT return.

There is a price to pay. The group members will be jointly liable so this can erode ring-fencing of businesses with different risks. How serious this is depends on the specific circumstances.