I have a client with three associated trading companies. My question is in respect of two that make up a parent / subsidiary relationship. In the current year, the parent company has achieved significant profits (£300k) and the subsidiary less (£50k). It would be beneficial to have the subsidiary charge the parent management fees sufficient to use up its low rate tax band.
My question is - How does HMRC view such transactions between group companies? Do they accept that the directors of the companies can raise whatever invoices they choose between the companies or do the they insist that there must be a valid commercial reason for any such transactions? How closely do they scrutinise this sort of transaction?
Any comments would be welcome.
Peter
Replies (1)
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Supplies must be genuine
By all means raise invoices for management charges, but these must reflect services performed, and the values must be able to be demonstrated. If the companies were in a VAT Group, this would be less of a problem, as intra-group charges are disregarded for VAT purposes.
Les Howard
www.vatproblem.com