Q:
Hi Marie
I have a parent and a sub, the parent pays for most of the transactions for the sub, including salaries, petrol, mot’s etc, these costs need to be charged to the sub via a sales invoice but does VAT have to be charged on everything? I’m not sure about charging VAT on salaries.
Kind regards
Colleen
A:
Hi Colleen
I’m so sorry it has taken me a while to get back to you! I’ve had a bit of a hectic week and am behind with everything.
I suspect that your “recharges” are actually the way of sharing out the cost of overhead expenses – such as say the telephone bill – so that the subsidiary can use the facilities. In this case the “recharges” would be consideration for a taxable supply by the parent company to the subsidiary and liable to VAT. In effect the parent company is providing the telephone service available to the subsidiary in return for a share of the cost.
So the best way of thinking about these things is this: What does the subsidiary get in return for their share of the cost? Chances are it’s something that’s liable to VAT such as the use of motor vehicles, office facilities, telephone, IT services etc.
The most difficult areas are usually rent recharges and salaries – rent could be exempt from VAT in which you need to look at the advice given by HMRC in VAT Notice 742: Land and Property which is here on the HMRC website: http://tinyurl.com/dfof4l. Rent and property costs can be very complex so you’d need to spend a bit of time reading up on this subject if you are recharging a proportion of rent to the subsidiary for their exclusive use, eg if they have exclusive use of certain office or warehouse space.
Also staff recharges might not be liable to VAT, especially if the employees are employed under joint contracts of employment. You need to look at the VAT Notice 700/54: Staff which is here: http://tinyurl.com/ybo8mky for more information on this to work out if your recharges are consideration for a taxable supply of staff.
I hope this information helps you work things out. I’ve actually been working on a longer article for the forum about intercompany recharges which I hope to post in the next week or so which goes into this subject in more detail and I’ll post a link here when I’ve posted the article. But hopefully this is enough to help you with your current recharges.
Marie