Q:
Hi, please help!
I recently attended a HMRC VAT event but I need clarification on Intercompany Trading.
Here is my situation.
Our company receives a purchase invoice for the amount of £100 + VAT = £117.50. This invoice actually relates to another part of the company (different VAT Group), so we recharge this cost to them.
When recharging to the other company, we charge them £117.50 + VAT = £138.06.
HMRC Confirmed this was the correct treatment for this.
Can anyone else confirm this?
Many Thanks,
Jane
A:
Hi Jane
Not sure I agree with HMRC on this one but it depends on a number of factors. For the avoidance of any doubt, the examples below apply to companies with separate individual VAT registrations or separate VAT group registrations where the “purchasing” company and the “user” company have separate registrations.
It’s typical in group situations for one company to act as a central purchasing company for the whole group to take advantage of large purchase discounts from suppliers and simplify the admin function. For example if the group as a whole gets a discount on its electricity supply then the purchasing company would get a single invoice in its name and then recharge each company for it’s share. Or the group might take advantage of large discounts on the purchase of stationery or other office supplies.
The other thing that sometimes happens is that the purchasing company purchases things for other companies on their behalf – as an agent acting as in their own name as principal for VAT purposes (see VAT Notice 700: The VAT Guide section 23.2 here for details http://tinyurl.com/37929df about agency situations).
In the above situations, the purchasing company will receive an invoice from the third party supplier in its name for goods or services it will be re-invoicing to the other group company. If the invoice is for £100 plus VAT of 17.5%, then the purchasing company can recover the VAT of £17.50 as input tax. It then raises an invoice for £100 plus VAT of £17.50 to the other group company.
The important point about this is that the purchasing company is able to recover the VAT charged by the third party supplier as input tax as it will be making an onward taxable supply of the goods/services concerned to the other group company.
If the invoice is in the name of the user company and the purchasing company is merely making the payment on behalf of the user company, then this is a disbursement. The purchasing company cannot recover the VAT as it is not its input tax, but it recharges the full amount of £117.50 without adding any further VAT on top. See section 25.1 of Notice 700 for further information about this.
I can’t cover every eventuality that could apply here on the forum and it is possible that teh advice given by HMRC could be correct in certain limited circumstances. But from my experience, most group situations fall within one of the scenarios mentioned above. Either way, have a look at the information in the VAT Guide and I’m sure you’ll find that your situation is covered.
Marie