A little unfair on your comment as I haven't actually taken on any paid work in relation to this. It is a small sub part of a group of companies that I am working for and from what I hear this seems to be a common issue across the board!
It depends on the item. If it is a recharge then you have to add VAT. For example if A charges B travelling to its premises then VAT is added. If it is a good that was for B (i.e if A had paid for a computer for B) then this would be a disbursement and no VAT would be claimed on the original invoice and no VAT would be added to the sales invoice to B.
Can you point me towards any guidance that supports this as they want proof before claiming.
Thanks for your answers they were very helpful! I have carried back the loss and my client can expect a big tax refund. Thanks Again