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VAT group opportunity should be available to sole traders and partnerships

12 Apr 2017

Many rural businesses have not had the ‘VAT group’ option and benefits available because they have carried on their trade as sole traders, trusts, or through partnerships.

That could be all set to change if HM Revenue & Customs (HMRC) recognises that, under EU law, the rules governing which businesses can join VAT groups has probably been too restrictive.

A recent consultation exercise has proposed widening the scope of VAT groups to partnerships and other entities where each body has its principal or registered office in the UK, and where both are under common control.

David McGeachy, a partner and VAT specialist at Saffery Champness, comments:

“For many rural businesses, the requirement to charge VAT on services provided between closely associated businesses has led to significant irrecoverable VAT costs where such VAT is not able to be recovered. However, groups of companies under common control have been able to choose to VAT group, thus giving them significant benefits where they provide a range of services between their VAT group members, and where otherwise the VAT charged would be irrecoverable.

“We believe that VAT grouping should not be restricted on the grounds that traders have chosen to trade by means other than as corporate bodies. Essentially, those businesses that are in the business of paying VAT should also be in a position to recover that, or a proportion of it, should they wish to do so.

“Such an arbitrary restriction has disadvantaged many smaller businesses, including family-run businesses and partnerships, that have chosen not to trade in a company structure.”

Saffery Champness anticipates that HMRC will make an announcement later in the summer on its proposals and determine whether the playing field for smaller, unincorporated businesses to be able to VAT group will be levelled.


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