VRM4300 - Who is entitled to claim: VAT groups

A claim may be made by the company acting, for the time being, as representative member of a VAT group where the group has made

• an over-declaration of output tax, or
• an under-deduction of input tax.

The only person who can make such a claim is the company that is acting as the representative member when the claim is made, regardless of any changes in the composition of the VAT group.

Output tax example

A group consists of companies Anna Ltd, Bernard Ltd, Cornelis Ltd, Dirk Ltd and Eduard Ltd. Anna Ltd is the representative member and the others are subsidiary members.

Cornelis Ltd issues invoices showing output tax and that is reflected in the return made by Anna Ltd in its capacity as representative member. Shortly afterwards, both companies leave the VAT group and are replaced by Ferdinand Ltd and Gerard Ltd. Gerard Ltd takes over as the representative member.

The group’s tax manager discovers a couple of years later that output tax ought not to have been shown on the invoices issued by Cornelis Ltd. The person who should make the claim is Gerard Ltd and the person to whom the claim should be paid is the company that is the representative member at the time when the claim is paid even if that has changed since the claim was made - Gerard Ltd in this example.

This is because Section 43 of the VAT Act 1994 deems the representative member to have carried on the business of all of the subsidiary members and to have made and received all supplies of goods and services made by or to them. Section 43 also holds the representative member responsible for the VAT affairs of the group as the single taxable person.

If a company that is now treated as a member of a VAT group discovers that it made an over-declaration of its output tax liability before it became a member of the group, the claim should be made by that company using its previous VAT registration number and any payment arising out of the claim should be made to that company, not to the representative member of the VAT group. This will probably require a ‘manual’ payment to be made.

Until the judgment of the Upper Tribunal in CRC –v- MG Rover [2016] UKUT 434 (TCC), it was HMRC’s view that, once the VAT group has been disbanded, the right to make the claim passes to the company that had issued the invoices wrongly showing VAT.

The Upper Tribunal held that when a VAT group is disbanded, the right to make any claims that may have arisen during the lifetime of the group remains with the company which was acting as the representative member of the group on the day on which it was dissolved.

This view was endorsed by the Inner House of the Court of Session in its judgment in Taylor Clark Leisure Ltd –v- CRC [2016] STC 2492 and has not been challenged in HMRC’s appeal to the Supreme Court.

Any claims made in relation to the activities of a VAT group, whether extant or dissolved, must be made by the representative member or the company that was acting as the representative member when the group was dissolved.

This question is still subject to litigation and may change.

Please remember that all subsidiary members of a VAT group are liable jointly and severally with the representative member for the period during which they were members of the group.

Input tax example

A group consists of companies Afula Ltd, Binyamina Ltd, Carmel Ltd, Dalya Ltd and Eretz Ltd. Afula Ltd is the representative member and the others are subsidiary members.

Carmel Ltd understates the group’s input tax entitlement in respect of its activities and that is reflected in the return rendered by Afula Ltd in its capacity as representative member. Shortly afterwards, both companies leave the VAT group and are replaced by Frans Ltd and Gedera Ltd. Gedera Ltd takes over as the representative member.

The group’s tax adviser discovers the error a couple of years later. The person who should make the claim is Gedera Ltd and the person to whom the claim should be paid is the company that is the representative member of the group at the time when the claim is paid even if that has changed since the claim was made.

This is because section 43 of the VAT Act 1994 deems the representative member to have carried on the business of all of the subsidiary members and to have made and received all supplies of goods and services made by or to them. Section 43 also holds the representative member responsible for the VAT affairs of every member of the group.

If a company that is now treated as a member of a VAT group discovers that it has understated its input tax entitlement in an accounting period before it became a member of the group, the claim should be made by that company using its previous VAT registration number and any payment arising out of the claim should be made to that company.

Until the judgment of the Upper Tribunal in CRC –v- MG Rover [2016] UKUT 434 (TCC), it was HMRC’s view that, once the VAT group has been disbanded, the right to make the claim passes to the company that had issued the invoices wrongly showing VAT.

The Upper Tribunal held that when a VAT group is disbanded, the right to make any claims that may have arisen during the lifetime of the group remains with the company which was acting as the representative member of the group on the day on which it was dissolved.

This view was endorsed by the Inner House of the Court of Session in its judgment in Taylor Clark Leisure Ltd –v- CRC [2016] STC 2492 and has not been challenged in HMRC’s appeal to the Supreme Court.

Any claims made in relation to the activities of a VAT group, whether extant or dissolved, must be made by the representative member or the company that was acting as the representative member when the group was dissolved.

This question is still subject to litigation.