VAT division - what is a VAT division?

VAT divisions are used when a company that has many subsidiaries wants to file VAT separately for each business section to simplify their VAT reporting.

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Each company division gets its own VAT registration number and keep their own records. This means that for tax purposes they are all considered individual entities, and must keep full records of all their accounting. Essentially, each division is treated as strictly as one big company one be.

Why would a company want to register for division VAT?

At first glance, it might just seem like having to complete more than one VAT return just creates more paperwork and makes things more complicated. However, there are some good reasons that a business might choose this option. Divisions of a business are different departments that serve individual functions - although they are owned by the same company.

For instance, an automotive manufacturer might have set up their company in such a way that cars are under one brand, heavy goods vehicles and are under another, and a luxury brand is another. These three divisions will operate independently, but are still owned by the parent company.

The goal of VAT divisions is to match this process - each business division is going to have their own accounting to report, so it makes sense that VAT reporting is done individually by each company branch rather than the head company handling all of their subsidiaries accounting through one department if it would make things especially difficult.

What are the rules of VAT divisions?

First and foremost, so long as the company has two or more separate business units that serve different purposes, each unit has their own accounting system, and they are not individually registered as Limited companies, then there is a good chance that being able to register for divisional VAT is possible.

Requirements for VAT Division approval

There are, however, some catches before approval can be requested. These are that:

• All divisions of the company must be VAT registered, regardless of whether their turnover (individually) is above the VAT threshold.
• The entire corporate entity (parent company plus all subsidiaries) must be entirely taxable, and there must be no exempt sales.
• The corporate entity is liable to pay any and all VAT debts of any of its divisions. For this reason, there is no way to mix a divisional VAT registration and a VAT group registration.
• All divisions must have the same tax periods when submitting their VAT returns to HMRC.

How do I register divisions of my business for divisional VAT purposes?

Although the forms needed to register for divisional VAT can be found online, however it isn't possible to actually complete or submit online.

You'll need to complete a form for each individual business division accompanied by a letter with a thorough explanation of why it isn't possible to submit one VAT return for the entire company, as well as provide proof that your company is incorporated.

Once you've printed and filled out as many forms as necessary, along with your letter of explanation, they can be sent to HMRC who will make their decision on whether to grant your business registering for divisional VAT.

VAT divisions and Debitoor

Although Debitoor does not support entire VAT Divisions with one account, we do make it simple to submit your VAT return online directly to HMRC via our integration. Being able to submit and generate your VAT return submission quickly, and in full, means that you can easily coordinate with your other divisions whilst remaining compliant with the rules of Making Tax Digital.

Debitoor has been approved as Making Tax Digital software by HMRC in time for the 1st of April deadline, and you can take advantage of this today on plans that support VAT reporting (M & L).