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VAT Issue?

Just working on a client's accounts and have noticed that Company A which is VAT registered has been receiving a management charge from company B which isn't VAT registered - NET OF VAT.

Both companies are run by the same husband and wife and are associated.

Am i right in thinking that the charge should have been standard rated?

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15th Mar 2012 09:52

VAT Charge

Absolutely, this often catches out people trying to have the best of both worlds, one business so they can reclaim everything and another so they can avoid charging non commercial customers.

If HMRC looked at it they might insist on both companies being registered. I've seen a limited company, a trade and a property rental business owned by the same person and run separately where HMRC made the registration cover all three.

The only defence might be that it was for labour only and hence exempt, but its a bit thin.

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By marine
15th Mar 2012 10:32

I thought so!

From an accountants point of view, how do we treat this now? Do i notify HMRC and provision for the VAT in the accounts?

I obviously need to make a note of this in my working file and advise the client, do i leave it up to them then to sort out. I dont work out the VAT the client does them thereselves.

 

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By Old Greying Accountant
15th Mar 2012 10:48

I may be wrong ...

... but I think it was stated on a recent thread that if the "management charge" is purely a recharge of shared expenses it may not be VATable

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15th Mar 2012 14:58

VAT on shared expenses

That might be the case if VAT was not reclaimed on the shared expenses, but who were the invoices made out to?

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15th Mar 2012 12:37

unless they are a VAT group

It sounds like both companies should be registered - if they are business splitting.  However, if they had a group registration - ie both companies have the same reg no, then the transactions between the two companies don't attract VAT.

I would be advising the client about the issue but if there genuinely are two separate business' and one is below the VAT threshold then it shouldn't be charging VAT.

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15th Mar 2012 17:23

Hang on, who is paying who?

Company A which is VAT registered has been receiving a management charge from company B which isn't VAT registered

What do you mean by 'receiving'?

If company A is charging company B then VAT should be charged.

If company A is being paid by company B then VAT does not come into it as B is not registered.

But be aware of the Cost sharing arrangements proposed for the 2012 budget see here

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By Old Greying Accountant
16th Mar 2012 15:44

I read it as ...

... VAT reg company A receiving management charge (i.e. cash) therefore should be raising a VAT invoice to company B!

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