Decoding VAT Group Registration: UK Business Strategy Explained 2026
- MAZ
- 22 minutes ago
- 11 min read
Decoding VAT Group Registration: A Smart Move for Your UK Business in 2025-26
Have you ever looked at your group of companies and thought, “There must be a simpler way to handle all this VAT paperwork”? I’ve worked with dozens of business owners just like you – perhaps running a holding company with a few subsidiaries, or a family-owned setup with trading arms in different sectors – who’ve felt overwhelmed by separate VAT returns, inter-company invoicing, and the constant juggling of input tax recovery. The good news? VAT group registration could be the straightforward solution you’ve been searching for. As someone who’s helped many clients navigate this over the years, I can tell you it often feels like a breath of fresh air once it’s set up properly.
In this guide, we’ll unpack what VAT group registration really means for UK businesses in the 2025-26 tax year, why it might (or might not) suit you, and how to go about it without unnecessary headaches. I’ll keep things clear and practical, drawing on the latest HMRC rules – because tax doesn’t have to be intimidating when you understand the basics.
What Exactly Is VAT Group Registration?
At its heart, VAT group registration lets eligible connected companies treat themselves as one single entity for VAT purposes. Instead of each company registering separately, filing its own returns, and charging VAT on supplies between them, everything rolls up into one group registration.
The “representative member” – usually the parent or a key company you choose – handles a single VAT return for the whole group. Supplies between group members are simply disregarded for VAT: no need to raise VAT invoices internally, no output tax to account for, and input tax recovery flows more smoothly across the group.
This has been a feature of UK VAT law for decades, and as of late 2025, there’s even been a helpful clarification from HMRC on cross-border aspects (more on that later). The current VAT registration threshold remains £90,000 for taxable turnover – but grouping can help manage that across multiple entities without triggering separate registrations.
Who Can Join a VAT Group? The Key Eligibility Rules
Not every business can form or join a group – HMRC has clear criteria to prevent abuse. Broadly, the companies must be “bodies corporate” (limited companies or LLPs) and under common control. That typically means:
● One controls the others (e.g., a holding company owning subsidiaries).
● They’re all controlled by the same person or persons (like family members).
● Or there’s a partnership or individual controlling them in a connected way.
All members must have a fixed establishment in the UK, and HMRC must be satisfied that grouping won’t lead to tax avoidance or undue revenue loss. They have discretion to refuse applications if it looks like the main purpose is dodging VAT.
A recent update worth noting: In November 2025, HMRC reversed its position on certain cross-border supplies involving EU branches of UK-grouped companies. Previously, some intra-group services might have triggered a reverse charge; now, overseas establishments are treated as part of the UK group more straightforwardly in many cases. If your setup has international elements, this could save you VAT costs – but do check your specific situation.
For the full official details, I always point clients to VAT Notice 700/2 on GOV.UK, which explains grouping (and the related divisional registration option) in depth.
The Real Benefits: Why Many Businesses Love Grouping
I’ve seen VAT grouping transform compliance for clients, especially those with inter-company trading. Here are the main advantages I highlight when advising:
● Simplified administration: One VAT return instead of several. Less paperwork, fewer deadlines to miss, and easier record-keeping under Making Tax Digital rules.
● Cash flow improvements: No VAT charged on internal supplies means no delays in reclaiming input tax between companies. If one entity has high costs and another high sales, recovery can balance out quickly.
● Better input tax recovery: Particularly useful for partially exempt businesses (like those in finance or property). The group’s overall recovery rate can improve, as exempt inputs don’t drag down taxable ones as much.
● No internal VAT invoicing: Saves time and avoids errors on inter-company recharges.
One client I worked with – a group of property companies – saved thousands annually in admin fees and reclaimed more input VAT after grouping. It wasn’t overnight magic, but it made their quarterly filings far less stressful.
Pros and Cons at a Glance
To help you weigh it up, here’s a quick comparison:
Aspect | Advantages of Grouping | Potential Drawbacks |
Compliance | Single return; less admin | Joint and several liability – all members responsible for the group’s VAT debts |
Internal supplies | Disregarded for VAT; no invoicing needed | Can complicate partial exemption calculations |
Cash flow & recovery | Smoother reclaim across group | One de minimis limit (£7,500 per year) for partial exemption instead of per company |
Penalties | Fewer returns mean fewer late-filing risks | Penalties calculated on larger group figures |
Flexibility | Easy to add/remove members (with approval) | HMRC may refuse if seen as avoidance |
In my experience, the pros outweigh the cons for most genuinely connected groups, but it’s not one-size-fits-all.
When Might Grouping Not Be Right for You?
It’s only fair to mention the downsides. The big one is joint and several liability: every member is on the hook for the whole group’s VAT bill. If one subsidiary messes up, everyone could face demands from HMRC.
Grouping can also hurt if your companies have very different VAT recovery profiles – say, one fully taxable and another mostly exempt. The aggregated partial exemption might reduce overall recovery.
And if you’re close to the £90,000 threshold individually, grouping combines turnovers, potentially pushing the group into registration sooner (though voluntary grouping is possible below that).
I always advise running the numbers first. A simple spreadsheet comparing current separate recovery vs. grouped can reveal a lot.
How to Apply: Step-by-Step Practical Guide
Ready to explore? Here’s what I walk clients through:
Check eligibility: Review control tests and establishments using HMRC’s guidance.
Choose your representative member: Usually the strongest financially, as they’ll handle payments.
Prepare the application: Use form VAT50/51 (available on GOV.UK). Submit it with your online VAT registration if starting fresh, or separately to amend.
Provide supporting info: Org charts, shareholdings, and explanations of control.
Wait for approval: HMRC aims for 30 days, but it can take longer. Treat the application date as provisional start if needed.
Update systems: New group VAT number; notify suppliers/customers.
If adding or removing members later, use the same form. And if you’re leaving a group, individual companies may need to re-register separately.
Top tip: Get professional input early. I’ve seen applications delayed by missing details, and it’s easier to get right first time.
Common Questions I Get Asked
Over the years, certain concerns crop up repeatedly:
● What if we have losses in one company? Grouping doesn’t directly affect corporation tax losses, but VAT recovery on costs can help cash flow.
● Does it affect the VAT threshold? Group turnover is aggregated for threshold tests.
● Can charities or partial exempt groups benefit? Often yes, but watch those de minimis limits.
● What about Brexit changes? Post-Brexit, UK rules are independent, and the 2025 clarification on EU branches is a positive for some.
Remember, tax rules can evolve – the £90,000 threshold has stayed steady into 2025-26, with standard VAT at 20%, reduced at 5%, and zero for essentials like most food and books.
Wrapping Up: Is VAT Grouping Your Next Smart Strategy?
VAT group registration isn’t flashy, but for the right businesses, it’s a genuine game-changer – cutting admin, boosting cash flow, and letting you focus on growth rather than paperwork. I’ve watched it ease burdens for many clients, turning what felt like a chore into something manageable.
That said, it’s not automatic; run the specifics for your setup. If your companies are connected and trading internally, it’s absolutely worth exploring. Start with HMRC’s VAT Notice 700/2 on GOV.UK for the official line, then consider chatting to an advisor who knows your numbers.
Tax might feel daunting, but options like this show the system can work with you. If you’re pondering this for 2025-26, now’s a great time to review – a little planning today can save a lot tomorrow. Feel free to reach out if you’d like a hand; I’m always happy to help fellow business owners navigate these waters.
FAQs
Q1: What happens to a company’s partial exemption calculation when it joins an existing VAT group?
A1: In my experience, this is one of the trickier areas that catches people out. When a company joins a VAT group, its partial exemption method doesn’t carry over independently – everything rolls into the group’s overall calculation. The de minimis limits apply to the group as a whole, not per member. I’ve had clients where a fully taxable subsidiary joined a partly exempt group, and suddenly their recovery rate dropped because the aggregated exempt inputs pushed the group over the edge. It’s worth modelling this beforehand with a quick spreadsheet; if the joining company has high recoverable costs, grouping might still win out, but run the numbers carefully for your specific setup.
Q2: Can a dormant or shell company be included in a VAT group?
A2: Yes, it absolutely can, and I’ve done this several times for clients restructuring ahead of a sale. HMRC allows non-trading or dormant companies to join as long as they meet the control and establishment tests. It’s handy for keeping options to tax in place or simplifying future transfers. That said, if it looks like the main reason is pure avoidance – say, just to distort partial exemption – HMRC might push back. In genuine group scenarios, though, it’s usually straightforward.
Q3: What are the VAT implications if a company leaves a VAT group?
A3: Leaving a group can feel like untangling a knot. The departing company often needs its own VAT registration from the exit date, and any intra-group supplies up to that point are disregarded, but post-exit they’re taxable if relevant. I recall a manufacturing client where a subsidiary was sold out of the group – we had to watch the Capital Goods Scheme adjustments carefully, as ownership changes can trigger clawbacks. Also, the option to tax on property stays with the land, not the departing member, which surprised a few of my property developer clients. Plan the timing well to avoid unexpected bills.
Q4: How does joint and several liability work in practice within a VAT group?
A4: It’s a big one that business owners sometimes overlook until it bites. Every member, even ones that have since left, can be chased for the group’s entire VAT debt from their time in it. I’ve seen this cause real headaches in family-run groups where one trading arm had compliance slips – suddenly the holding company or a quiet subsidiary gets a demand. My advice? Strong internal controls and regular reviews; it’s not just the representative member’s problem.
Q5: What recent changes in late 2025 affect VAT groups with EU branches?
A5: Well, it’s worth noting that HMRC reversed their position in November 2025 on the Skandia rules. Now, overseas EU establishments of UK-grouped companies are treated as part of the single UK entity again, meaning no reverse charge on certain intra-entity services. This is a relief for clients I’ve advised with cross-border setups – it simplifies things and can unlock overpaid VAT claims going back a few years. If your group has EU branches, dig out those old returns; there might be a reclaim opportunity.
Q6: Can partnerships or sole traders join a VAT group?
A6: Unfortunately not – VAT groups are strictly for bodies corporate like limited companies or LLPs. I get this question a lot from family businesses mixing partnerships and companies. The workaround I’ve suggested to clients is incorporating the trading arm if it makes sense, but that brings its own corporation tax considerations. It’s frustrating for smaller setups, but the rules are clear on this.
Q7: How does grouping affect the Capital Goods Scheme for assets?
A7: The CGS intervals transfer with the asset if it moves within the group, but changes in group membership can trigger adjustments. Picture a client with a high-value warehouse owned by one subsidiary; when we grouped it, the interval became the group’s responsibility. If a member leaves with a CGS asset, you might face a clawback based on the new recovery rate. Always flag CGS items on the VAT50/51 application – HMRC asks about them for a reason.
Q8: What if HMRC delays approving a VAT group application?
A8: Delays are more common than they used to be, and they create real admin pain. You can’t use the group number until approved, so individual entities often have to keep filing separate returns in the meantime. I’ve helped clients through this by advising provisional inter-company accounting, then adjusting once approved. It’s messy, but better than penalties for non-filing. Give yourself plenty of lead time – months, not weeks.
Q9: Does VAT grouping help or hurt if one company is in repayment and another in payment position?
A9: It usually helps on cash flow – repayments and liabilities net off in one return. But if the repayment trader was on monthly returns separately, grouping might force quarterly, delaying refunds. I had a tech group where this was an issue; we weighed it up and still grouped for admin savings, but accepted the slower cash flow. Depends on your profiles.
Q10: Can HMRC refuse a VAT group application even if eligibility is met?
A10: Yes, they have discretion if they think it’s mainly for avoidance or risks revenue beyond normal grouping benefits. I’ve seen refusals in partly exempt setups where the savings looked too good. In genuine commercial groups, it’s rare, but always explain the business rationale clearly in your application.
Q11: What happens to options to tax on property when companies group?
A11: The option applies to the group as a whole while grouped – any member can use the property without VAT on rent. But if a member leaves with opted property, the option sticks to the land, and the ex-member might face disapplication rules. Property clients of mine plan exits carefully around this.
Q12: Is there a minimum trading requirement for companies in a VAT group?
A12: No strict minimum, which is why holding companies often join. But if a company makes no supplies at all, HMRC might question if it’s truly eligible or just for distortion. I’ve included pure holdcos successfully where they incur costs for the group.
Q13: How does grouping affect error corrections and penalties?
A13: Errors aggregate across the group, so a small mistake in one entity can push the total over thresholds for mandatory notifications or higher penalties. In my experience, groups with multiple sites need tight central oversight to avoid this snowballing.
Q14: Can a company with overseas establishments still join a UK VAT group?
A14: Yes, as long as it has a UK fixed establishment and meets control tests. The late 2025 clarification helps here too – EU branches are now more integrated. Great for multinational clients I advise.
Q15: What paperwork is needed when adding a new company to an existing group?
A15: You’ll use VAT50/51 again, with org charts and control evidence. I always include a covering letter explaining the commercial reason – it speeds things up. Delays happen, so submit early.
About the Author
Maz Zaheer, AFA, MAAT, MBA, is the CEO and Chief Accountant of MTA and Total Tax Accountants, two premier UK tax advisory firms. With over 15 years of expertise in UK taxation, Maz provides authoritative guidance to individuals, SMEs, and corporations on complex tax issues. As a Tax Accountant and an accomplished tax writer, he is renowned for breaking down intricate tax concepts into clear, accessible content. His insights equip UK taxpayers with the knowledge and confidence to manage their financial obligations effectively.
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