If you run a travel or hospitality company (or group of companies) the VAT return will seldom be the most enjoyable activity to focus upon. Even budgeting for a VAT return can be tricky given all the recent turbulence and fluctuation in demand in the travel and hospitality sectors. One way to make the process more efficient is to form a VAT group whereby a group of individuals/partnerships/companies/entities can submit one return on behalf of all members of the group. Many business owners find this makes the filing process more simplified in terms of the amount of time and resources it takes to submit a return. If you were to form a VAT group today, you would of course have to submit your return digitally as the deadlines for migrating to MTD have already passed, as this article on MTD for VAT groups explains. That said, digital submission is far more efficient and accurate so it’s a win-win situation for each group member.
Before deciding whether to form a VAT group for your businesses it’s worth defining what a VAT group actually is…
“VAT grouping is a facilitation measure by which 2 or more eligible persons can be treated as a single taxable person for VAT purposes. Eligible persons are bodies corporate, individuals, partnerships and Scottish partnerships, provided that certain conditions are satisfied” (source: gov.uk)
The main benefits of forming a VAT group are efficiency and simplification. For example, if you own a group of hotels that are all registered as separate entities (but owned by one parent group/person) ostensibly it would make absolute sense to form a VAT group and submit one return on behalf of all of these businesses. Another benefit to consider is that you can also include what is known as an exempt company (a company that ordinarily on its own would not be able to register for VAT and claim input tax).
If you are attracted to the idea of a VAT group there are a number of technical factors you should consider which are…
- If you make a late submission, the default surcharge amount will be based on the higher turnover of the group, rather than the turnover of the individual VAT registrations, thus making the higher amount become due
- When you form a VAT group the existing thresholds remain the same, e.g £10,000 is still the voluntary disclosure limit with the payments on accounts threshold still being £2.3M net VAT per annum. (Both of which apply to the whole group)
- The group will receive one new VAT number for all members. Any previous registrations will have to be cancelled and deregistered. Equally, if the group is disbanded then all members will need to deregister and get their own VAT numbers again. Although a minor point perhaps, any existing company stationery, sales collateral, website etc will all have to be updated once you form or disband a group.
- If you import anything for your travel business, you will need a new EORI number. Although this is more of an administrative burden as an EORI number can typically be issued within a week, it is still something to take note of when deciding whether to form a group or not.
In addition to the above points, it’s also important to note that submitting a unified return on behalf of all members will mean getting all the relevant information together at the same time across each business. For businesses that operate in a similar manner, for example, different branches of a travel agent that have each been set up with individual limited liability, it may be quite simple to align data for the submission. However, for companies which may be under common ownership but are otherwise disparate, this may become more complex.
Finally, another factor business owners should consider is that the combined turnover of the VAT group members could exceed the £2.3M threshold whereby VAT needs to be paid on a monthly, rather than quarterly basis. This then as a consequence can hit cash flow, particularly for those members who are used to paying VAT every three months, rather than every month. For travel firms that make most of their money in the summer peak season of July/Aug/Sept, they would not have the luxury of being able to build up cash reserves and waiting the usual one month and 7 days after Q3 to pay the VAT bill (October 7th).
Interest in VAT groups has increased over the years, particularly after the passing of the Finance Act 2019 which allowed unincorporated businesses including partnerships, sole traders and trusts to be part of a group. However, whether a group is the right structure for your business really depends on your individual circumstances. Once a group is formed it can be burdensome to unpick so always research whether the benefits outweigh any potential downsides, particularly in relation to cash flow and payment dates.