VAT Recovery for a Foreign Subsidiary

VAT Recovery for a Foreign Subsidiary

Didn't find your answer?

I have a client with 2 companies, the main company is UK registered, the other company (not a subsidiary) is registered in West Africa.In the past their old accountants have put the VAT on purchases through the UK registered company. I don't think this is the best way forward as the nature of supplies and purchases are completely different one is an IT consultancy while the other is a Mail order business. Any suggestions????
Dee

Replies (3)

Please login or register to join the discussion.

avatar
By davidgough
24th Jan 2006 17:35

You may have a problem
It sounds like the West African Company obtains the goods in the UK potentially from your client and exports them themselves. If the goods are standard rated your client should charge the West African Company VAT.

The VAT will be recoverable if the West African Company registers for VAT in their own right. If they do register they will need to obtain and keep evidence of export to support zero rating.

If the goods are exported by post the appropriate evidence will be a certificate of posting. Failure to retain adequate evidence of export may lead to HMRC assessing your client for 7/47 of the “sales” to West Africa.

If the West African Company arranges for the goods to be collected from your client and taken outside the EC you may be able to claim that the goods have been “indirectly” exported. However if your client does not get the paperwork right they will be required to pay the VAT due.

If you would like to advise contact details I would be happy to discuss further.

Thanks (0)
avatar
By joey69
23rd Jan 2006 13:09

VAT Recovery for a Foreign Subsidiary
David, sorry about the vagueness of my query. In answer to your queries, the UK company is an IT consultancy while the west African company is a mail order business purchasing goods in the UK based on enquiries from customers in West Africa.

The only presence the West African company has in the UK is that its directors are UK residents, sharing an office with the UK company is that enough grounds to register for VAT, in that case would a group situation arise - total turnover for the West African company is below the threshold for registration.

Thank you for your detailed reply, i hope this information gives a better understanding of the situation.
I am inclined to go with the intercompany transfers at arms length.
Dee

Thanks (0)
avatar
By davidgough
20th Jan 2006 11:20

It depends on what you mean.....
It is difficult with such scant information to give a full reply. What are the purchases? Are they supplies of goods or services? What does the West African Company do? Why is it incurring costs in the UK?

I presume that only the UK company is VAT registered and that the West African company makes no supplies in the UK which would require it to register for VAT in the UK.

You should bear in mind that for VAT purposes a business can only recover VAT on supplies that it receives in the course of its business. If the supplies are not made to the UK company, it should not recover the VAT even if the invoice is made out to it. It maybe able to use the agency provisions in VATA s47 (i.e. supplies through an agent acting in his own name can be treated both as a supply to the agent and as a supply by the agent) if it is acting in an agent capacity.

If the purchases are supplies of goods the UK company may be buying and selling them to the West African company and thus making a zero rated export. As such, provided the UK company correctly exports the goods and declares them to Customs at export, it will be able to recover input tax in relation to its (zero rated) supply. It will need to obtain and keep commercial and Customs evidence that the goods have been exported.

If the purchases are supplies of services, the UK company may be making an outside the scope (with credit) supply of consultancy services to the West African company and the purchases will relate to that supply. Again input tax should be recoverable if the purchases relate to the onward supply. Note that not all services supplied to a West African company will be free of VAT. Information on this can be found in VAT notice 742 International services.

If the West African company has a presence in the UK and has incurred the costs in its own right it may be able to register for VAT in the UK and claim the VAT on its own VAT returns. Whilst this should not create a branch in the UK for direct tax purposes you will need to consider this point.

If the West African company has no presence in the UK and has incurred the costs in its own right it may be able to recover the VAT by making an EC 13 directive VAT refund claim to HMRC.

A better understanding of the circumstances will be needed to give a complete answer.

David Gough
VAT Consultant
Chiltern plc

Thanks (0)