Rural businesses suffer from irrecoverable VAT hits and should have access to the VAT Group, according to financial experts Saffery Champness.

They say that many rural businesses have not had the VAT Group option and associated benefits because they have carried on their trade as sole traders, trusts, or through partnerships.

That could all be set to change if HMRC recognises that under EU law the rules governing which businesses can join VAT groups has been too restrictive.

A recent consultation exercise has proposed widening the scope of VAT groups to partnerships and other entities where each body has its principal or registered office in the UK, and where both are under common control.

David McGeachy, partner and VAT specialist with Chartered Accountants Saffery Champness, said: "For many rural businesses the requirement to charge VAT on services provided between closely associated businesses has led to significant irrecoverable VAT costs where such VAT is not able to be recovered.

"However, groups of companies under common control have been able to choose to VAT group giving them significant benefits where they provide a range of services between their VAT group members, and where otherwise the VAT charged would be irrecoverable.

"We believe that VAT grouping should not be restricted on the grounds that traders have chosen to trade by means other than as corporate bodies.

"Essentially, those businesses that are in the business of paying VAT should also be in a position to recover that, or a proportion of it, should they wish to do so.

"Such an arbitrary restriction has disadvantaged many smaller businesses, including family run businesses and partnerships, that have chosen not to trade in a company structure."

Saffery Champness anticipates that HMRC will make an announcement later in the summer on its proposals and determine whether the VAT group option will be made available for smaller, unincorporated businesses.