Transfer pricing and VAT

[Deleted User]

Hey

I have a question with regards to TP and VAT.

Company X owns companies A & B. If company A is VAT registered and buy raw mats and converts them to finished goods, can company A transfer those goods at marginal cost to company B without charging VAT as company B is not VAT registered?

Both companies are in the UK.

Thanks.

SandyHood

The selling company is registered for VAT, so sales of VATable items to any buyer should be made including VAT.

This looks a little like an accountancy teachers' staff room question rather than one that would crop up very often.
I was trying to think of a company that might have a manufacturing subsidiary which was selling above the VAT threshold which I can see is very realistic.
Then I thought about company B. This might be a newish retail subsidiary which isn't turning over enough for VAT registration, or might even be a recent acquisition.

Look at the part of company A where the goods are made that are sold to company B. If the raw materials bought are not subject to VAT, can the raw materials be invoiced to company B directly by the supplier? This would then reduce the invoice from company A to company B to just the conversion costs.

Very often agencies in the service sector will only charge their fees to the client, but expect the client to pay the suppliers direct. I recall a DJ booking agency which did exactly that.

[Deleted User]

Thanks Sandy.

I was expecting that to be the answer (unfortunately) but just though that I would check.