Taxation

Taxation for a UK Economic Interest Grouping (UKEIG) follows a unique structure that reflects the grouping’s not-for-profit purpose and its status as a fiscally transparent legal entity. Unlike companies, a UKEIG does not pay corporation tax on its profits because it is not considered a taxable body in its own right. Instead, profits and losses are passed through to the individual members, who are responsible for declaring them based on their own tax circumstances.

Understanding how a UKEIG is treated for tax purposes is essential for all members, as they share liability and must account for their portion of the grouping’s financial position. This includes income tax or corporation tax, VAT, and other reporting requirements that may apply depending on the nature of the activities involved.

Fiscal Transparency

A UKEIG is not a separate taxable person for income or corporation tax purposes. This means that:

  • The grouping itself does not file a corporation tax return

  • It does not pay tax on profits as a standalone entity

  • Instead, each member is taxed individually on their share of the grouping’s income or losses

This structure mirrors the tax treatment of partnerships, although a UKEIG is not legally classified as such. The benefit of this approach is that tax is only applied once—at the member level—avoiding double taxation and allowing members to integrate UKEIG activities into their existing tax filings.

Member Tax Responsibilities

Each member must include their share of any income or loss from the UKEIG in their own tax return, depending on their legal form:

  • Companies report income as part of their corporation tax return

  • Individuals (such as sole traders) include the share in their self-assessment

  • Charities or public bodies may treat income differently depending on the exemption or rules that apply to their organisation

The exact share attributable to each member is usually specified in the formation contract, which sets out how income, costs, and losses are distributed. Where the contract is silent, members are generally expected to divide results equally.

Members must also ensure they retain sufficient records and calculations to support their tax filings. The UKEIG’s internal financial records play a key role in helping each member meet this obligation.

VAT Registration

Although a UKEIG is not subject to income or corporation tax, it can be liable to register for VAT in the United Kingdom if it meets the relevant thresholds. VAT obligations apply in the following circumstances:

  • The UKEIG provides taxable supplies (such as services or goods) to its members or others

  • The grouping’s VAT-taxable turnover exceeds the UK registration threshold (currently £90,000 as of 2024)

If registered, the UKEIG must:

  • Submit regular VAT returns to HMRC

  • Charge VAT on applicable supplies

  • Reclaim input VAT on eligible business expenses

VAT registration is often required when the grouping organises shared activities—such as marketing, training, or joint infrastructure—and recovers costs from members in a way that qualifies as a supply of services.

Members must be careful to assess whether VAT is due when making payments to or receiving services from the grouping. Incorrect treatment can result in penalties or disallowed input tax claims.

PAYE and Employment Taxes

If a UKEIG employs staff, it must register as an employer and operate PAYE (Pay As You Earn) and National Insurance Contributions in accordance with HMRC rules. This includes:

  • Deducting income tax and NICs from employees’ wages

  • Reporting payroll information monthly

  • Paying employer NICs and pension contributions where applicable

The UKEIG is subject to the same obligations as any employer, and failure to comply can result in penalties. Even small-scale employment—such as part-time administrative or finance roles—triggers the need to register with HMRC.

Other Tax Considerations

Depending on its operations, a UKEIG may also be affected by:

  • Business rates, if it occupies commercial premises

  • Stamp duty, if it acquires property or enters certain lease agreements

  • Customs duties, for groupings involved in importing/exporting goods

While the grouping is not designed for profit-making, it can still be subject to a range of indirect taxes or levies depending on its activities.

Record Keeping and Audit

Although UKEIGs are not required to file annual accounts with Companies House, they must maintain adequate internal financial records to:

  • Allocate income and costs accurately to members

  • Support members’ individual tax returns

  • Comply with VAT or PAYE requirements if applicable

Some groupings choose to appoint a treasurer or external accountant to help manage this process, especially where the financial arrangements are complex or where members are based in different jurisdictions.

HMRC can request to inspect UKEIG records, and members should ensure the grouping’s documentation is complete, accurate, and retained for the standard period (usually six years).

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