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One business or more - reduce irrecoverable VAT costs

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The VAT People - Expert Author

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7th February 2014

Many of the clients of the accountants that we assist are owner managed businesses. In some cases the clients will opt to have a number of different trading entities, this is often to designed to ring fence risk properties or particular business activities. Such approach can, however, have unforeseen and costly VAT consequences. This is particularly the case when the owner manager takes the view that there is in reality only one business (him or her!), whereas HMRC instead view each entity on a business by business basis. Take for example an owner manager business we recently assisted.

The corporate group had rapidly expanded and the group members included businesses making wholly VATable supplies and other businesses making a mixture of VATable and VAT exempt supplies. Each business covers a specific geographic region in the UK. All the head office costs are incurred by the group holding company and recharged to the other group members plus VAT. HMRC visited the business and noted that in excess of 50K VAT per year was being recovered in full on management charges incurred by one of the heavily partially exempt group members. The business was not entitled to recover the 50K VAT per year in full and HMRC and sought to assess for VAT over claimed and apply penalties and interest.

Following a request for assistance via our free VAT helpline we were able to review the basis for the recharges from the holding company to the group members. The review revealed that the charges consisted of staff salary costs for staff on joint employment contracts and thus did not attract VAT. As this was the case the partially exempt group member still faced an assessment for VAT over claimed on the management charge. However, the VAT it stood to lose was offset by the VAT that the holding company had over declared on the same charges. Furthermore, HMRC agreed to waive interest charges and suspend any penalties that might otherwise be applied, and thus the end result was a good one for our client.

If you or your clients are part of a corporate group it is worth reviewing the VAT position in order to ensure that there is no unforeseen VAT loss created between charges passing between the group members. Indeed, with effective planning it is often possible to remove any VAT leakage


About the Author

The VAT People are leading VAT and Customs Duty consultants based in the North West of England. We work with a wide range of businesses throughout the UK as well as assisting our accountancy colleagues to unravel the thorny VAT issues for their clients. We are one of the UK's largest and most comprehensive sources of VAT and Customs advice, our consultancy team having over 140 years of experience in VAT and Customs gained in either HMRC or a Big 4 accountancy practice environment.

Call us on our VAT helpline 0800 077 4604 to discuss. All initial discussions are free with no-obligation.



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Article Published/Sorted/Amended on Scopulus 2014-02-17 10:17:53 in Tax Articles

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