Tax

HMRC has recently updated its published guidance on the effect of insolvency on existing VAT groups following appointment of an insolvency practitioner.

The updated guidance

The updated guidance provides that:

• Where the holding company becomes insolvent, any pre-existing VAT group remains intact unless the holding company ceases to control the group. HMRC notes that the holding company may cease to meet the control criteria where, for example, the insolvency practitioner disposes of shares and/or changes the share ownership or voting arrangements.
• Where a group member (other than the holding company) becomes insolvent, the assumption of control by the insolvency practitioner does not necessarily result in a change of control for VAT grouping purposes. Instead, as where the holding company becomes insolvent, any pre-existing VAT group remains intact unless the control criteria cease to be met. The control criteria may cease to be met where, for instance, the insolvency practitioner changes share ownership or voting arrangements or the company is dissolved and ceases to exist.
• In both cases, where the insolvent company is the representative member of the VAT group and the control criteria cease to be met, the VAT group will need to appoint a new solvent representative member.

Comment

Although it is well established that entry into liquidation results in the company losing the beneficial ownership of its assets, there has been some uncertainty as to the effect of entry into liquidation on VAT grouping. In this regard the updated guidance provides helpful clarity on HMRC’s approach as well as providing a reminder to practitioners of the importance of considering the tax impact of entry into insolvency procedures.