a VAT question

LMW

I hope that someone can help me with this.
Two separate UK entities, separate VAT numbers, not in a VAT group but owned by the same Luxenburg company. Company A employs Mr Brown and Mr Brown's contract states that he works for company A and the work of place is company A's premises. Mr Brown actually spends his time doing work for company B and company A sends a monthly invoice to company B to recover the cost of Mr Brown's salary and NI. I thought that company A needs to charge VAT on their invoice to company B (company A is charging for a service), but my colleague called HMRC today and was told that there was need to charge VAT because this was an inter company charge. Could someone please explain this to me :confused1:

stevo5678

I agree with HMRC, it is VAT neutral so why would you want/need to charge VAT between the two?

Re-charged salary costs are normally treated this way IE without VAT. I would think it is very odd If I was out auditing a client who charged VAT in this scenario.

RAS

Not certain, but if not in a VAT group then I would have thought should be VAT added, even if VAT neutral at the end of the day.

Bluewednesday

We invoice between 2 associated companies for wages and they have VAT added. This has been cleared with the VAT office at a recent VAT inspection. The only way not to charge VAT was to register them as a group which we didn't want to do.

LMW

Thank you all for your help. I had the same info than Bluewednesday from a previous VAT inspection (3 years ago) and could not understand HMRC's advise and thought that they must have changed the rules recently and that I have missed the announcement.

reader

LMW wrote: »

Thank you all for your help. I had the same info than Bluewednesday from a previous VAT inspection (3 years ago) and could not understand HMRC's advise and thought that they must have changed the rules recently and that I have missed the announcement.

In my experience it is always worth 'hanging up and trying again' with HMRC. The advice you get from HMRC, from my experience, generally depends on who you are speaking to. Maybe the HMRC officer at the other end of the line didn't understand the situation, assumed it was a group, or was a bit inexperienced. Also, it is always worth taking the name of the person you are speaking to in case you act on their advice and things go wrong.

I've had a look at S.44, VATA 1994 and it does say that "supply of goods or services by a member of the group to another member of the group shall be disregarded". This to me suggests that if an application for Group Registration has not been made that there should be VAT charged.

LMW

Thank you very much Reader, I really appreciate your help.

stevo5678

just audited a 6m t/o company which is part of a group and there was NO VAT.

They had an inspection in the year as well.

I don't really get why you would want to add vat, of course being vat neutral makes a difference. HMRC only care if they are due revenue or not. If they are not due it in overall terms then it makes no difference to them and ultimately the tax payer.

reader

stevo5678 wrote: »

just audited a 6m t/o company which is part of a group and there was NO VAT.

They had an inspection in the year as well.

I don't really get why you would want to add vat, of course being vat neutral makes a difference. HMRC only care if they are due revenue or not. If they are not due it in overall terms then it makes no difference to them and ultimately the tax payer.

Nice anecdote- but is there any HMRC guidance or sections of the VAT Act that backup what you are saying?

stevo5678

Sorry see post below.

stevo5678

I'm sure there is somewhere!

I believe you can spend your life as an accountant trying to understand/learn/manipulate the rules.

Sometimes practical assessments from experience are worth their weight in gold. After all that is why we all have to train with firms to get qualified and not just pass some exams...

For the record I am always looking up things, but think that there should be a good balance.

Here's something I found though, all appears to be contract related.

VAT NOTICE 700/34

3.2 Joint employment
Where staff are jointly employed there is no supply for VAT purposes between the joint employers. Staff are jointly employed if their contracts of employment or letters of appointment make it clear that they have more than one employer. The contract must expressly specify who the employers are for example 'Company A, Company B and Company C', or 'Company A and its subsidiaries'.

Staff are not jointly employed if their contracts are with a single company or person, even if it requires them to work for others. Paragraphs 2.1 to 2.3 apply in that case. There is no joint employment where for example there is a contract with one employer:

which lays down that the employee's duties include assisting others, or
that the employee will work full-time for another, or
where the job title shows that the employee works for a group

So looks like you can go the group exemption route OR the contract route.