Intercompany charges and VAT

Intercompany charges and VAT threshhold

Didn't find your answer?

I have 2 new clients. A Limited and B Limited. A Ltd is owned 100% by Mr X and B is owned 100% by Ms Y. X and Y are not related.

A Ltd has been trading for several years just below the VAT threshold (until taking account of services provided below). B was set up about 18 months ago.

Some of A Ltd's employees have been helping B Ltd  and B Ltd  has been making payments to A Ltd for these services. B Ltd has no employees.

A Ltd has not included charging for these services when calculating whether they have gone over the VAT threshold. A Ltd does domestic cleaning and B Ltd does garden maintenance. The owner of A thought that he only needed to include his sales of cleaning services in calculating his sales towards the VAT threshold; he didn't realise he also needed to include the recharge of staff services to B Ltd.

If these staff services are included in A Ltds turnover then A Ltd actually went over the VAT threshold several months ago.

I assume I am correct that these staff services should be included in A Ltd's sales. If so then they should have VAT registered several months ago. Not by much but since October last year their running cumulative 12m sales (including the staff services provided to B Ltd) have been between 87,000 and 90,000. If they had been registered since last October that would be 8 months sales at about 7,500 sales per month so 1,500 VAT due per month (very little VAT to reclaim as most of inputs are labour costs).

I have not come across late VAT registration before. Do HMRC have any leeway in a situation like this or are they likely to hit them for the 1,500 x 8 months.

As A Ltd is not making any significant profit and there are no overdrawn balances on the DLA such an assessment would probably make A Ltd insolvent.

Not sure what to do or recommend here.

Replies (6)

Please login or register to join the discussion.

RLI
By lionofludesch
24th May 2019 11:29

Making supplies to a sister company is still making supplies. They'll be treated just like any other business which registered late.

Expect nothing less.

Thanks (0)
By Duggimon
24th May 2019 11:34

Is B Ltd registered for VAT?

Thanks (0)
avatar
By soundadvice
24th May 2019 12:14

Thanks. No B Ltd is not VAT registered.

Am I obliged to tell HMRC that A Ltd are late registering for VAT or should the client register for VAT immediately and just keep their fingers crossed?

Thanks (0)
Replying to soundadvice:
RLI
By lionofludesch
24th May 2019 12:24

soundadvice wrote:

Am I obliged to tell HMRC that A Ltd are late registering for VAT ?

Yes, of course.

Thanks (0)
avatar
By paulwakefield1
24th May 2019 13:34

Were the charges at cost or was there a profit element? If the former, might the payments fall within paymaster services? See VAT 700/34 para 3.3

Thanks (0)
Replying to paulwakefield1:
avatar
By Bobbo
24th May 2019 14:28

Based on what the OP has said, paymaster services seems very unlikely

Thanks (0)