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VAT and management charges

 

Posted on 29 October 2013

Please be alert to management charges supplied between corporate group members.

Unless the companies are in the same VAT group, VAT should normally be accounted for on the supply of any inter-company management services. The only exception is where there is no underlying supply of services and the charge is a means of transferring profits/losses between group members.

Typically the management charge will be from a holding company to a subsidiary and relate to directors time and/or re-charges of centrally incurred administration costs. Very often the charge will be recorded by a monthly journal, no invoice will be raised and the final charge agreed at the year-end. VAT will still be due, although depending on the circumstances, the tax point may be deferred to the date when y/e accounts are signed.

If both the holding company and subsidiary are fully taxable, there will be no net loss of VAT to HMRC. However, HMRC will still assess the holding company for under declared VAT and it opens up the possibility of additional penalties being imposed. The easy way to remove this liability is to VAT group all members, although there may be other reasons why a business may wish to exclude a company from a VAT group.

If you’d like any further information, please get in touch with VAT expert Tony Bartle here

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