VAT grouping

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The Finance Bill extends Customs’ powers to deny companies the benefit of VAT grouping where the Exchequer is at risk. Fears have been expressed that the resulting uncertainty will hamper normal commercial transactions.

In response, Customs promised that they would issue a Business Brief in July giving further details on how they intend to use their new revenue protection powers. This Business Brief has now been issued.

The changes will take effect from the date of Royal Assent.

Customs will now provisionally approve all VAT group applications from the date of receipt and will then consider, within 90 days, whether to finally accept the application.

Customs aim to reply within 15 working days of receipt of the grouping application with the new VAT number, confirmation that the application is being processed, or with the information that further enquiries are to be made.

If Customs have not written with the result of their enquiries within 90 days, then the Business Brief states that they will not be able to refuse the application.

If the application for grouping is refused, the representative member of the VAT group will have to submit a voluntary disclosure to reverse the VAT accounting done while the VAT group was provisionally in existence. (The Business Brief does not state whether a voluntary disclosure would also be required for other VAT registrations involved, such as registrations which existed prior to the VAT group’s provisional inception.)

Businesses must notify Customs if they think that it is likely that their application for VAT grouping will be refused. However, there does not appear to be any legal basis for this statement, and it remains to be seen how this is applied in practice.

Where the removal of a company from a VAT group on grounds of protection of the revenue is being considered, Customs will write to the business.

It is stated that sufficient time will normally be given for businesses to rearrange their affairs as a result of the removal of a company from a VAT group. However, it is difficult to see what a ‘sufficient amount of time’ will be.

Customs will normally accept that a natural result of grouping is the loss of VAT on intra-group supplies.

The Business Brief quotes from the case of National Westminster Bank PLC (LON/97/124) which stated that, in deciding what was ‘necessary for the protection of the revenue’, Customs should balance the effect on a business of refusal of VAT grouping against the loss of revenue likely to result from allowing VAT grouping. The Business Brief goes on to state that Customs will compare the revenue loss with the administrative cost to the business. This appears to be a narrower interpretation than that suggested by the Tribunal.

Customs also say that businesses will be asked to provide details of the impact of a refusal to allow grouping, or of the removal of a company from a group. It is difficult to know exactly what details would fulfil this requirement.

Customs Headquarters will be involved in any case where the protection of the revenue powers are to be invoked. Presumably this is intended to allay fears which have been expressed that the new powers might be applied inconsistently across the country.

For further information, speak to your usual KPMG tax contact.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

VAT grouping

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