VAT on recharges between office share

Managing costs incurred by two charities sharing an office

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We are two charities, who share an open plan office, IT, stationery, etc. etc. We are separate companies, working in the same area (arts) but with distinct beneficiaries. We also share a member of staff (finance). We have an MOU between us on how we share costs (based on sometimes 50/50 and sometimes based on headcount ratio, where appropriate, and have successfully worked alongside each other for over a decade (prior to my joining). We each re-charge proportions of various invoices to the other organisation on a regular basis. Should we be charging VAT on these? We both do quarterly VAT returns as we both charge VAT for services, and are charged VAT, but as registered charities, we can claim this back. I'm not an accountant, and while we do have accountants on the Board, I am seeking advice separately so I have some reccomendation from the community. Many thanks for any advice.

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RLI
By lionofludesch
29th Aug 2019 16:16

Who originally pays these costs to the third parties ?

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Replying to lionofludesch:
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By Matthew Cock
29th Aug 2019 16:26

Both organisations do on occasion, e.g. one company pays the IT company, the other pays the stationery bill - and we recharge to each other.

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By spidersong
29th Aug 2019 16:44

Quote:

 We both do quarterly VAT returns as we both charge VAT for services, and are charged VAT, but as registered charities, we can claim this back.

Do you mean you neither of you incur any irrecoverable VAT? If so do your charitable activities have no VAT bearing costs, or is it the charitable activities that subsidise the trading activities so that all VAT is recoverable? [EDIT: The terminology may be a bit loose there, basically, are all your activities primary purpose trading which is VATable?]

Anyway on what basis is the office shared, are you joint tenant or is one tenant and one subletting from the other?

I think this may end up being one where you'll need someone to go through the actual agreements in place to finds out who's actually making what supply to whom.

Actually is the office share a red herring, are these actually office costs were looking at or are they other costs, you just say 'various costs' but don't elaborate?

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Replying to spidersong:
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By Matthew Cock
29th Aug 2019 16:56

OK in response: all our activities are primary purpose / charitable. (true for both orgs)

One is tenant, and the other (will be - we're setting this up as it's been informal before) a licensee of the tenant, by a side agreement between the two orgs.

It's mostly the non-rent costs that I'm asking about - e.g. IT, cleaning services, stationery - where it's simpler and cheaper to have one contract, and share the costs. For ease of admin, each org manages some of these, rather than the one (tenant) doing them all, and re-charging to the licensee.

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chips_at_mattersey
By Les Howard
29th Aug 2019 22:30

“As registered charities we can claim this back.”
Are both charities fully taxable?
The re-charges you describe are taxable. But you should seek broader advice as to the best arrangement.

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By Matthew Cock
30th Aug 2019 11:11

We are both VAT-registered charities, so we can reclaim all the input tax we are charged on purchases which directly relate to taxable goods or services we sell. Which we each do. However, we've not seen clear guidance on whether we should add VAT to the amount we recharge to the other charity (which would then again be claimed back).

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Replying to Matthew Cock:
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By lionofludesch
30th Aug 2019 11:26

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However, we've not seen clear guidance on whether we should add VAT to the amount we recharge to the other charity (which would then again be claimed back).

In regard to the supplies to each other, you're in no way "special" because you're a charity. If you're looking for something that says "Supplies for joint expenses from one charity to another, sharing the same premises", you'll not find it.

These are just ordinary, day-to-day supplies. They'll be standard rated, exempt or possibly reduced rate. I didn't see any zero rated stuff on your list.

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