Transfer pricing and VAT


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.



  • SandyHood
    SandyHood Registered, Moderator Posts: 2,034
    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.
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  • Thanks Sandy.

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