Independent VAT Consultant
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VAT: Rules for groups reformed

From 1 November 2019 partnerships, sole traders and trusts can join a VAT group if they control the other corporate bodies in that group.
5th Nov 2019
Independent VAT Consultant
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Since VAT first graced our shores in 1973, only corporate bodies have been permitted to join a VAT group, such as limited companies or LLPs which have a business establishment in the UK.

That position changed on 1 November 2019, with unincorporated businesses now being allowed to join a group in certain cases, including individuals, English and Scottish partnerships and trusts.

The change was confirmed by the passing of regulation SI 2019/1348 on 15 October 2019, which implemented Schedule 18, Finance Act 2019 to amend s43A, VATA1994.

Control condition

This change was promoted by a CJEU decision back in 2015, which meant that HMRC had to extend the eligibility for group treatment beyond corporate members in order to comply with EU law. The two cases in question were Larentia + Minerva and Marenave (C-108/14 and C-109/14).  

The two main conditions for non-corporate bodies being able to join a group from 1 November are:

  • The sole trader or partnership must be ‘carrying on a business by making supplies’ (VAT Notice 700/2, para 2.2.2). These supplies can be exempt from VAT so a business without taxable sales can still join the group.
  • It must control all of the corporate bodies in the group, which usually means owning 51% or more of the share capital in the other companies – ie similar to the parent/subsidiary company relationship for corporate bodies.

Example 1

Bill and Ben trade as a partnership, offering management consultancy services in the travel industry. They each own 30% of the shares in a travel agent Holidays Ltd.

The Bill and Ben partnership and Holidays Ltd cannot form a VAT group because Bill and Ben own the shares of Holiday Ltd individually. If they owned 60% of the total shares as a partnership, it would be possible to apply for a group registration.

Example 2

Mary owns 100% of the shares in both ABC Ltd and DEF Ltd, earning dividends from both companies. She has no other income.

Mary cannot form a VAT group between herself and the two companies because she is not making any business supplies so she is not eligible to register for VAT as a sole trader. Dividend income is outside the scope of VAT. But the two companies could form a group because of Mary’s control of them both (VAT Notice 700/2, para 2.9).


The main advantage of the new legislation is that unincorporated businesses joining a VAT group will enjoy the two main benefits of group registrations:

  • supplies of goods or services between group members are not subject to VAT;
  • a single VAT return will be completed each period for the entire group, as opposed to the unincorporated business submitting its own returns if it had its own VAT number.

The main disadvantage is that all group members are jointly and severally liable for any VAT debts of the group – this might be an unwanted risk for some individuals. However, a partnership can be made up entirely of corporate bodies, which have limited liability. 

Grouping tips

I have recently been asked by two separate advisers if a business can keep the same VAT number when a group registration is formed. The answer is no. Individual VAT registrations are cancelled by deregistration, and the new group gets its own VAT number issued by HMRC. There is no overlap of time.

Another common question is whether an overseas company can join a VAT group. The answer to this one is yes, as long as it has an establishment in the UK as defined by the place of supply rules (VAT Notice 741A, section 3).

Cash is king

Always be clear that the benefits of group VAT registration are basically linked to cash flow and administration.

However, there can be some VAT savings such as where there are inter group supplies to a member that is partly exempt or making non-business supplies – ie taking away irrecoverable input tax in some situations.

This article has been amended to reflect the law as it was passed.


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