Vat on inter company recharge

Inter company vat

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Hi, 

I'm a vat registering holding company recharging business rates to a subsidiary which is also vat registered and I'm wondering if vat should be charged on this as business rates are not a supply for a service.

can any one advise on if vat should be charged or if it's exempt?

Replies (6)

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paddle steamer
By DJKL
31st Aug 2016 00:26

Presuming no grouping for vat, is it merely part of the rates charge or the whole cost i.e. is it a disbursement or an apportionment?

The reason I ask is that we once leased a warehouse to the BBC for a few weeks (Edinburgh, the choice for period dramas) The property was opted to tax. I charged vat on the rent but did not on the rates , something like 20 days worth was charged. HMRC, on a subsequent visit, advised me that as I was not merely dealing with a disbursement and vat ought to have been charged. Now whether this was because the rent was vatable or whether it would apply in all such cases I do not know, but as nobody else has yet answered hope it gives you an avenue to explore.

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paddle steamer
By DJKL
31st Aug 2016 00:31

Having established that the cost belongs to the landlord, we now need to check whether the property has been opted to tax. This should be a simple question to answer, because if it has been opted to tax, VAT will have been charged on the rents.

It should be noted that, regardless of the option to tax position, the recharge of insurance, rates, or utilities is actually an additional supply of rent. It cannot be treated as an onward supply of insurance, rates, or utilities, because the landlord is not itself an insurer, local authority, or utility company.
https://www.taxinsider.co.uk/617-Recharging_Commercial_Property_Costs_to...

As the recharge is effectively rent in another name, it follows that where an option to tax has been taken to add VAT to the main rents, any recharge (of insurance, rates, or utilities) would also be subject to VAT. Conversely, where there is no option to tax, the recharge is then free of VAT (i.e. it is exempt).

No idea if on point but worth a read.

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By shaun king
31st Aug 2016 14:35

in whose name is the Business rate demand in?

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Replying to shaun king:
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By Aplange
31st Aug 2016 21:33

Rate demand is in the holding company's name.

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By shaun king
31st Aug 2016 21:43

In that case if holding company has opted to tax, the charge will be subject to VAT as t will be considered part of the consideration for the grant of the interest. If no option, then exempt from VAT.

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Replying to shaun king:
Routemaster image
By tom123
31st Aug 2016 21:58

shaun king wrote:

In that case if holding company has opted to tax, the charge will be subject to VAT as t will be considered part of the consideration for the grant of the interest. If no option, then exempt from VAT.

Assuming an option exists, would it make sense, Shaun, to put the parent and sub in to a VAT group and thus allow interco charges free of vat anyway?

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