Inter-company arrangement

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If you are involved in a number of associated companies, this First Tier decision is worth a read.

The underlying technical issue was to do with a Partial Exemption calculation, and input tax incurred in relation to one company’s investment property activities.

The decision is not helped by a non-sensical HMRC decision: “HMRC’s decision to disallow this claim was based on the belief that when companies with a common director supply services to each other there is not a vatable supply as the other company could have supplied the services itself.”

The decision refers to ‘dual capacity companies,’ which had a common sole director. The two companies had quite distinct but related activities. The director had no clear inter-company agreement. In hindsight a simple Heads of Terms agreement would have saved him the stress of enduring the appeal process!

About Les Howard


Hi, I am a VAT Consultant, working mainly with charities. I am based in Cambridgeshire

I have over 20 years experience in VAT, and am currently also a part-time member of the Tax Tribunals.


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20th May 2019 12:38

Interesting case, Les.

We are starting to see more HMRC questions about inter-company management charges, despite the largely VAT-neutral impact. This may help confirm to the Revenue that the commercial reality of management charges is correct for VAT purposes, too.

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21st May 2019 10:43

Compare & contrast the direct tax case in the link below where there was a written agreement yet taxpayer lost:

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