VAT grouping

There are special VAT rules that allow two or more corporate bodies to be treated as a single taxable person for VAT purposes known as a VAT group.

Advantages of group registration

  • The representative member accounts for any tax due on supplies made by the group to third parties outside the group. This is particularly helpful if your accounting is centralised.
  • As the group is treated as a single taxable person, you do not normally account for VAT on goods or services supplied between group members.
  • Only one VAT return is required for the whole group.

Disadvantages of group registration

  • You will need to make sure that the representative member has all the necessary information to submit a VAT return for the group by the due date.
  • All members of the group are jointly and severally liable for the tax due from the representative member.
  • The partial exemption de minimis limits apply to the group as a whole and not the members individually.
  • The limit for voluntary disclosures of errors on past returns also applies to the group as a whole.
  • The cash accounting limits apply to the group as a whole and not to the members individually.
  • The payment on account limits will apply to the group as a whole and not to the members individually.

HMRC has recently updated the applicable VAT Notice 700/2: group and divisional registration. The notice cancels and replaces the previous version published in August 2014 and has been updated to reflect changes coming into effect on 1 April 2019 that clarify which overseas services can be classified as bought-in services to ensure that such services are subject to UK VAT.

What is a post-cessation expense?

There are special rules for the taxation of post-cessation receipts and post-cessation expenses. This article explains how, or if, post cessation expenses can be claimed.

In order to be an allowable post-cessation expense, the trade must have ceased, and the expense must have been considered deductible in calculating trading profits.

This means that the expense still has to meet the wholly and exclusively test and be revenue, not capital, expenditure. The expenditure can be apportioned if necessary. The way in which post-cessation expenses can be relieved depends on the person incurring the expenditure and the type of expenditure incurred.

The following are examples of expenses that would likely be categorised as post-cessation expenses:

  • remedying defective work done, goods supplied, or services rendered while the business was continuing or as damages in respect of such defective work, goods or services whether awarded by a Court or agreed during negotiations on a claim
  • paying legal or other professional expenses incurred in connection with the costs above
  • insuring against liabilities arising out of any such claim or against the incurring of such expenses
  • collecting, or seeking to collect, debts which were taken into account in computing the profits of the trade before discontinuance.

An expense specifically relating to the cessation itself is not an allowable expense.

Person liable to pay tax on post-cessation receipts

There are special rules for the taxation of post-cessation receipts, those received after a trade has ceased. The legislation clearly states that the person who receives or is entitled to the post-cessation receipt is the person who is subject to Income Tax or Corporation Tax on the income. This does not have to be the same person who carried on the original trade.

The only test to consider when deciding whether these rules apply is if the income is a post-cessation receipt. If it is, then unless the territorial exclusion applies, the income is taxable on the recipient.

HMRC manuals explain how case law has determined when and if there is another person with a claim to the income. Effectively, the conclusions drawn mean that it is the person who receives the money who is taxable even if others can also lay claim to the funds involved.

Consideration must be given to the specific facts of each case to decide who is liable to tax on the post-cessation receipt.

Income excluded from UK property business

Most of our readers will be aware of the £1,000 property income allowance that came into effect on 6 April 2017. This allowance applies to income from property (including foreign property). If your annual gross property income is £1,000 or less, the amount is exempt from tax and doesn’t need to be reported on your tax return. In practice, the use of this allowance is limited, but could work, for example, if you rented your parking space for a small amount of extra income.

HMRC also publishes a list of income streams that are excluded from a UK property business. The list includes fishing concerns, hotels and guest houses, tied premises, caravan sites, lodgers and tenants in your own home, extra services to tenants and letting surplus trade accommodation. In most cases the income from these activities will be taxed as income of a trade and not as property income.

There are also certain receipts which can arise out of the use of land and which are specifically excluded by statute from a rental business. These include yearly interest, income from the occupation of woodlands managed on a commercial basis, income from mines and quarries and income from farming and market gardening.

Is HMRC’s message real or fake?

HMRC has issued an updated version of their online guidance on Genuine HMRC contact and recognising phishing emails and texts. The guidance provides a current list of genuine messages from HMRC. This includes email messages, text messages and telephone contacts from HMRC.

The latest updates on the list includes confirmation that HMRC is contacting selected taxpayers by phone in relation to National Minimum Wage or National Living Wage enquiries. Taxpayers will be asked some basic questions about current working, or previous employment experiences and will be given the opportunity to request that their current or previous employer are not informed about the phone call.

HMRC is also sending emails to some businesses that have signed-up to the Making Tax Digital for Business VAT pilot. The email includes a link to a short voluntary questionnaire asking for feedback on the sign-up and submissions process.

Although all these communications are genuine, taxpayers should still be wary of receiving messages that are purported to come from HMRC. Fake email and text messages can appear to be genuine, but clicking on a link from these messages can result in personal information being compromised and the possibility of computer viruses affecting your computer or smartphone.

One recent example of a fraudulent email that appeared to be sent from HMRC stated that a recent submission had been 'successfully received but unfortunately failed HM Revenue & Customs data checks and could not be accepted'. The email went on to request that the recipient use the attached link to correct the submission and send it again. The email looked genuine, but the email address from which the email was sent, looked suspect. Further investigation revealed that this was indeed a scam email but serves as a useful reminder of the continued importance of being vigilant.

Don't open suspect messages or follow links

If you are unsure as to the validity of any message it should not be opened until the sender can be verified. The validity of letters from HMRC can also be checked by contacting HMRC directly by telephone to confirm if a letter is genuine.

Do you employ an au pair?

There are special rules that need to be taken into account if you employ an au pair in your home. This is because au pairs are not usually considered as workers or employees and are not entitled to the National Minimum Wage or paid holidays.

An au pair is effectively treated as a member of the family they live with and receive 'pocket money' instead of salary. The au pair may be liable to Income Tax and National Insurance if the amount of ‘pocket money’ they receive is high enough.

HMRC’s guidance states that an au pair isn’t classed as a worker or an employee if most of the following apply:

  • they’re an EU citizen or have entered the UK on a Youth Mobility visa or student visa
  • they’re here on a cultural exchange programme
  • they’ve got a signed letter of invitation from the host family that includes details of their stay, for example accommodation, living conditions, approximate working hours, free time, pocket money
  • they learn about British culture from the host family and share their own culture with them
  • they have their own private room in the house, provided free of charge
  • they eat their main meals with the host family, free of charge
  • they help with light housework and childcare for around 30 hours a week, including a couple of evenings babysitting
  • they get reasonable pocket money
  • they can attend English language classes at a local college in their spare time
  • they’re allowed time to study and can practise their English with the host family
  • they sometimes go on holiday with the host family and help look after the children
  • they can travel home to see their family during the year

If you employ someone else to work in your home, you need to ensure that you provide them with their employee rights and deduct the correct amount of tax from their salary. The type of employees you may have in your home could for example be a nanny, housekeeper, gardener or carer. The rules are different if the person working in your home is self-employed or paid through an agency.

Repay your employer for private fuel

Where an employee with a company car is provided with fuel for their own private use by their employers, the default position is that the employee is required to pay the car fuel benefit charge. The charge is determined by reference to the CO2 rating of the car, applied to a fixed amount, currently £23,400. For example, a vehicle with a CO2 rating of 150g/km would create a taxable benefit of £7,254. The car fuel benefit charge will increase to £24,100 for the 2019-20 tax year.

Crunch the numbers – which is lower, tax on the benefit or repay private fuel used?

The car fuel benefit charge is not applicable when the employee pays for all their private fuel, this includes commuting to and from work. Employees should keep a log of private mileage and can then use the published advisory fuel rates to repay the cost of fuel used for private travel back to their employer. In this case, HMRC will accept that there is no car fuel benefit charge and the employee will save the Income Tax charge on the private car fuel benefit. It will usually be much cheaper to repay your employer for private fuel rather than to pay the Income Tax charge especially if private mileage is relatively low.

The advisory fuel rates are intended to reflect actual average fuel costs and are updated quarterly. However, the use of the advisory fuel rates is not binding if the employer can demonstrate that employees cover the full cost of private fuel by repaying at a lower rate per mile. There is also a lower advisory rate if the company car is fully electric.

Making Tax Digital for VAT

The deadline for businesses with a turnover above the VAT threshold to keep digital records for VAT purposes using Making Tax Digital (MTD), is here. For VAT returns periods starting on or after 1 April 2019, businesses with a turnover above the VAT threshold (currently £85,000) will have to:

  • keep their records digitally (for VAT purposes only), and
  • provide their VAT return information to HMRC through MTD functional compatible software.

Businesses need to sign up for MTD for VAT in order to submit VAT returns digitally. In a recent update, HMRC has clarified that businesses that pay VAT by Direct Debit cannot sign up in the 7 working days leading up to, or during the 5 working days after sending a VAT Return.

Penalties eased during first year

HMRC has confirmed that during the first year of the changes, they will take a light touch approach to digital record keeping and filing penalties where businesses are doing their best to comply with the law. HMRC is clear that this does not mean a blanket 'no penalties promise' and businesses need to do their best to meet the MTD requirements.

HMRC has also said that no business will be forced to go digital for their VAT returns if they are unable to; any businesses that are currently exempt from online filing of VAT will remain so under MTD. There are also provisions for those who cannot adapt to the new service due to age, disability, location or religion, to apply for an exemption.

If your business has a turnover under the VAT registration threshold, you are not currently mandated to use the MTD for VAT service but can opt to do so if you wish.

Holiday pay campaign

The government has launched its first holiday pay advertising campaign aimed at encouraging workers to understand their rights and employers to understand their legal obligations in relation to holiday pay. It estimates that, in the UK, 1.8 million workers are not receiving the holiday pay they are entitled to, resulting in them missing out on an estimated £1.8 billion each year.


The campaign, which has the slogan “Holiday pay – it comes with the job”, aims to reach workers and employers through video on demand, Spotify advertising, and digital website and social media advertising, as well as adverts in train stations and on the roadside.

Tax Diary March/April 2019

1 April 2019 – Due date for Corporation Tax due for the year ended 30 June 2018.


19 April 2019 – PAYE and NIC deductions due for month ended 5 April 2019. (If you pay your tax electronically the due date is 22 April 2019)


19 April 2019 – Filing deadline for the CIS300 monthly return for the month ended 5 April 2019. 


19 April 2019 – CIS tax deducted for the month ended 5 April 2019 is payable by today.


30 April 2019 – 2017-18 tax returns filed after this date will be subject to an additional £10 per day late filing penalty.


1 May 2018 – Due date for Corporation Tax due for the year ended 30 July 2017.


19 May 2019 – PAYE and NIC deductions due for month ended 5 May 2019. (If you pay your tax electronically the due date is 22 May 2019)


19 May 2019 – Filing deadline for the CIS300 monthly return for the month ended 5 May 2019. 


19 May 2019 – CIS tax deducted for the month ended 5 May 2019 is payable by today.


31 May 2019 – Ensure all employees have been given their P60s for the 2018-19 tax year.