Money Matters

Making Tax Digital for VAT groups: Submissions and deadlines

Understand how Making Tax Digital affects VAT groups, including submission requirements and deadlines that have passed.

Making Tax Digital for VAT has been around since April 2019.

Any individual or business registered for VAT must keep key VAT accounting records digitally and use software to submit their VAT Returns.

Effectively, this has meant most businesses use software for their accounting.

This brings huge benefits within itself, such as far better insights into business finances compared to attempting to keep accounting records manually.

MTD for VAT applies to VAT groups too, and brings the same rules and requirements.

In this article we take a look at this, plus several deadlines that have come and passed relating to VAT groups and MTD.

For more information about all aspects of Making Tax Digital, please visit Sage’s MTD Hub.

Here’s what we cover:

Group VAT MTD registration

So, what is a VAT group?

Sometimes it’s financially sensible for two or more companies (known as ‘bodies corporate’), or two or more partnerships, businesses or individuals, to use just one VAT registration.

This is known as a VAT group registration.

In practical terms, it means one member of the group acts as the representative member for VAT purposes. This member is responsible for VAT Returns, plus paying and reclaiming VAT, for all the members of the group.

The second key benefit is that members of the VAT group need not account for VAT when making supplies to each other.

Making Tax Digital for VAT applies to group VAT registrations, just like it applies to any individual VAT-registered business.

But things are much more complex with VAT groups compared to a standalone VAT business, because there’s typically a lot more data to be gathered for each return.

This might exist in several locations.

According to the rules of MTD for VAT, the various accounting systems across the group have to be digitally linked.

It has to be possible for all the accounting systems or other software (such as point-of-sale systems) used by each business to send or otherwise make available their data in a single digital location.

That data is then used to prepare the VAT Return.

It’s because of issues such as this that HMRC allowed several delays for larger organisations such as VAT groups following the start of Making Tax Digital for VAT in April 2019.

Making Tax Digital for VAT software

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Deadlines for MTD for VAT groups

Although now passed, there were two key deadlines for Making Tax Digital for VAT when it comes to VAT groups.

October 2019

This was the deadline by which VAT groups needed to start observing the rules of MTD for VAT.

In other words, it applied for the first full VAT accounting period after October 2019.

This meant that, if the VAT group filed quarterly VAT Returns, and their first MTD for VAT period started in October 2019, the first MTD for VAT Return would have needed to have been submitted in early February 2020.

Larger organisations such as VAT groups got this extension following the April 2019 introduction date because of the typical complexity of their systems, and likely issues arising in getting everything ready in time.

October 2020

When Making Tax Digital for VAT started, HMRC allowed what was known as the soft landing period.

Businesses could ignore a key part of the digital linking requirement—namely, that manually copying or cutting and pasting data between two locations was prohibited.

As mentioned, when it comes to VAT group registrations, creating a VAT Return can involve collating information from various sources. Therefore, being able to cut/copy and paste is very useful.

However, as of October 2020, the full digital linking rules came into force.

This meant cut/copy and paste was against the law when it came to key VAT accounting data and preparing the VAT Return. Any businesses caught doing so could be penalised by HMRC.

For those filing group VAT returns, this came as something of a blow—but HMRC had allowed a full year following the introduction of MTD for VAT for the group VAT member to prepare.

What are digital links?

The rules of Making Tax Digital say the relevant accounting data must be stored digitally.

Furthermore, software must be used to send returns or other kinds of updates to HMRC, as required within the MTD rules.

Therefore, if you use more than one piece of software or more than one system, they must be all be digitally linked.

It must be possible to automatically transfer the data from one digital location to another.

You might have to click a button to start off this automated transfer, but the key thing is that you’re not doing it manually—perhaps by copying and pasting the data, or even scribbling it into a notebook and then rekeying it into another system.

That said, what’s considered digital linking can sometimes be surprising and a little counterintuitive. Emailing a spreadsheet is fine, for example. You can even pass data to somebody via USB memory stick.

The rules for digital linking for Making Tax Digital for VAT can be found in the VAT Notice 700/22.

It’s not yet clear if Making Tax Digital for Income Tax (also known as Making Tax Digital for Income Tax Self Assessment) or Making Tax Digital for Corporation Tax will use the same digital linking rules.

FAQs on MTD for VAT groups

Here’s the answer to some frequently asked questions around Making Tax Digital for VAT, as well as VAT groups.

What is a VAT group?

Rather than create individual VAT Returns across several companies or organisations you might control, you can combine them into a single virtual entity called a VAT group.

This means you only need to submit one VAT Return, which will report all the group member’s VAT supplies and acquisitions.

VAT groups eliminate the need for VAT accounting between companies in the group.

In other words, if Company A makes a supply to Company B, then there will be no need to account for this as a VAT supply.

However, there are some exceptions to this, including some bought-in services, and the cost component for some supplies. This is detailed in Section 7 of VAT Notice 700/2.

There are also certain limitations on what entities can form VAT groups. These are listed in Section 2.2 of the above VAT Notice.

Who can form a VAT group?

A VAT group can comprise various elements:

  • Bodies corporate, which is to say, incorporated businesses (limited companies, public limited companies, and so on).
  • Eligible non-corporate bodies, which is to say, individuals, partnerships and Scottish partnerships. The inclusion of non-corporate bodies has only been possible following a change of the law in 2018.

There are other rules, such as the fact the bodies corporate or non-corporate must have a fixed establishment in the UK, and be under common control.  

What is a VAT group registration?

A VAT group registration is where one person or business registers for VAT on behalf or two or more bodies corporate, or two or more individuals, partnerships or Scottish partnerships.

This means the person or business is treated as a single taxable person or business, yet they’re responsible for filing a single VAT Return on behalf of all members of the group.

To create a VAT group registration, you must complete the form VAT 50/51 with details of the VAT group, and then register for VAT in the usual way (just like any individual or business), providing VAT 50/51 as an attachment.

How do I submit a group VAT Return?

Submitting a group VAT Return is done just like it is for an individual or business. You need to use software to submit the VAT Return, as per the rules of MTD for VAT.

The software connects to HMRC’s computers across the internet so you can file the VAT Return.

A spreadsheet can be used to compile VAT accounting data for a group VAT return, provided the digital linking rules above are not broken.

Bridging software can then be used with the spreadsheet to make a VAT Return submission to HMRC.

However, most VAT groups use MTD-ready software for their VAT accounting, and so are easily able to create the VAT Return based on data already within the system(s).

Final thoughts on MTD for VAT groups

VAT groups offer a useful way to account for VAT across several businesses.

It can reduce complexity and costs.

But it also brings its own requirements when it comes to legally complying with MTD for VAT’s requirements, and particularly the prohibition on copying/cutting and pasting data from one place to another.

However, the benefits of using Making Tax Digital for VAT—and therefore using software for VAT Return submissions—bring such powerful benefits that this is a small sacrifice.

Editor’s note: This article was first published in February 2022 and has been updated for relevance.

Making Tax Digital for VAT checklist

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