VAT on Inter-Company Charges

VAT on inter-company charges can be confusing. But it is fairly common for two or more businesses to operate alongside each other and share costs such as wages, rent and office costs. In the event of an inspection, the VAT inspector will check inter-company charges carefully so it is important to raise all the correct paperwork and charge VAT correctly.

Wages, Directors Salaries

Where one business pays for staff salaries and then re charges a portion to another company then this generally is not VATable.

Recharge of exact costs

Where one company bears the cost of an expense and recharges this back to another company in full and at the exact amount of the invoice, then this is also not VATable, since it is a disbursement.

Management Charges

Where one company charges another a fixed charge then this charge is VATable and will be paid over in one company and reclaimed in the other (a VAT group registration could avoid this).

It is advisable to keep paperwork relating to each invoice and to seek the advice of a professional if you are unsure whether you should charge VAT on inter-company charges or not.

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Anita Forrest
About Anita Forrest

Anita Forrest is a Chartered Accountant, spreadsheet geek, money nerd and creator of - the UK small business finance blog for the self-employed community. Here she shares simple, straight-forward guides to make self-employment topics like taxes, bookkeeping and banking easy to understand.