Three related UK companies form a VAT group, with Company A named as the representative member responsible for submitting the group's VAT Return. Company A later becomes insolvent while still owing VAT to HMRC for a period during which all three companies were group members. Under HMRC's VAT grouping rules, can HMRC pursue Company B or Company C for that unpaid VAT?
- No; only Company A can ever be pursued, because the representative member takes on sole legal responsibility for all group VAT debts
- Yes; all members of a VAT group are jointly and severally liable for the group's VAT debts, so HMRC can pursue Company B or Company C for the full amount even though Company A was the representative member
- No, unless Company B or Company C explicitly guaranteed Company A's VAT liabilities in a separate written contract
- Yes, but only up to each company's own proportional share of the group's taxable turnover for that period
Why B? And why not the others?
Correct answer: B. Yes; all members of a VAT group are jointly and severally liable for the group's VAT debts, so HMRC can pursue Company B or Company C for the full amount even though Company A was the representative member
HMRC's VAT grouping rules make all members of a VAT group jointly and severally liable for the group's VAT debts, so even though Company A, as representative member, is responsible for submitting returns and making payments on behalf of the group, HMRC can still pursue Company B or Company C for the full amount of unpaid VAT relating to a period when they were group members, regardless of Company A's insolvency. The option confining liability solely to the representative member misunderstands the point of joint and several liability, which exists precisely so that HMRC is not left unable to collect a group's VAT debt simply because the administratively designated member cannot pay. The option requiring a separate written guarantee invents a contractual precondition that plays no role here; joint and several liability among VAT group members arises automatically from group membership under the VAT grouping rules, not from any additional agreement the companies must sign. The option limiting each company's exposure to its proportional share of turnover misdescribes joint and several liability, which by definition allows HMRC to recover the entire outstanding debt from any one liable member rather than splitting it proportionally between them.
Source: GOV.UK: Registering groups, divisions and joint ventures for VAT