Q:
Hopefully an easy question (to which I cannot find an answer at HMRC).
I have two subsidiaries within the Group of companies. One is UK based the other is based in Dubai. The MD from Dubai arrives in UK. The UK company hires a car for him. Invoice is presented to the UK subsidiary including VAT. VAT is reclaimed in the usual way. However the net amount of the invoice is recharged to the Dubai subsidiary. Being export and intercompany there is no VAT involved. The result of the transactions is NIL for the UK sub, a charge for Goods against the overseas entity and NIL VAT paid to HMRC.
Question – Is it correct to reclaim the VAT in this manner?
Thanks
A
Intercompany recharges are a bit of a minefield really, they can cover a whole host of issues so I’ve tried to explain some of the basic principles.
First of all, I assume that the companies are not in a UK VAT group registration and that the Dubai company is not registered for VAT in the UK or any other EC country. I also assume that the recharge is for the provision of the car alone and that it does not form any part of an overall supply of services from the UK company to the Dubai company, eg consultancy services. If it does, that is an whole other subject!
There is not much guidance on the VAT treatment of intercompany charges simply because the term can cover a whole range of supplies. You have to analyze the nature of the actual services provided in return for the charge before you can establish the correct VAT liability. And of course it becomes even more confusing when you are dealing with cross-border charges as these involve the “Place of Supply” rules which are explained in detail in VAT Notice 741.
There is a short notice 700/34 on the HMRC website (type VAT Notice 700/34 Staff into the search box and go down the list to the heading “Staff” and click on this to open the notice, then see paras 3.4 – 3.8) which deals with charges made for supplies of staff and this provides a little guidance on charges made for services of directors, which you may find useful. However you have to treat this notice with caution as much of it deals with supplies of staff and a particular concession known as the “Staff Hire Concession” which was withdrawn on 1 April this year. The notice is being updated to reflect this change, but as far as I am aware the guidance given about services of directors has not changed.
However, I think that your query is actually more straightforward as you seem to be talking solely about the recharge for the use of the car in the UK. In this case you probably do need to charge UK on the recharge to the Dubai company, because the provision of the car falls into the “Use and Enjoyment” rules, ie because the car is used in the UK, then the supply is always liable to UK VAT regardless of where the recipient belongs. See VAT Notice 741, section 14.4 – 14.5 which explain this in further detail. Obviously I don’t know the full circumstances of the use of the car, but have a look at this section and hopefully it will enable you to reach the correct conclusion.
If VAT is chargeable, it may be possible for the Dubai company to make a claim for the UK VAT charged by applying for a “Thirteenth Directive Claim” which allows non-EC business to claim certain VAT costs incurred in EC countries. You can find information about this in VAT Notice “Refunds of VAT in the EC for EC and Non-EC Businesses”. It is relatively easy to make these claims but they can be more trouble than they are worth if teh amount of VAT involved is relatively small.
I hope this helps you to find the answer.
Marie