... need a little bit of advice please...

... need a little bit of advice please...

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I have a client who runs two businesses from the same office, let's call them Business A and Business B.

Business A is currently running at a loss but does bear the brunt of all the fixed costs, whereas Business B is making good profits but without a lot of the shared overheads charged to it.

I guess I can raise an internal invoice from Business A (which is VAT registered) to Business B (which is not) thereby reducing B's CT bill but obviously increasing A's.

I just wondered - do we just decide on a fair amount of the shared fixed costs for the year and raise an invoice - how do HMRC view this exercise?

Any thoughts would be much appreciated!

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By thisistibi
26th May 2011 14:39

Transfer pricing

What you are describing is called transfer pricing, i.e. how do you establish the correct price between two connected parties.

The answer is that you should establish the price as if the two parties weren't connected, i.e. what would Business A charge a third party for the same services? 

If Business A and Business B are in the same CT group relief group, then it may all be a bit of a non-issue?

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Teignmouth
By Paul Scholes
26th May 2011 17:49

Shame about the VAT

Agree with thisistibi, although from what you say unlikely to be in same CT group. So as long as you are scientific in allocating the overheads there's nothing wrong with a re-charge one to the other.

If a cost is genuinely shared and doesn't carry VAT then it might be better to get the supplier to bill B and it then to re-charge A for its bit, that way you avoid generating a VAT charge (A to B) that B can't reclaim.  I'm sure you've already considered registering B but there may be other reasons why this is not sensible.

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By User deleted
26th May 2011 18:24

Transfer pricing

does not apply to small companies and only may apply to medium-size companies. Though you could still fall foul on wholly & exclusive principles if the charge is too high.

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