Reclaim Input VAT, Output i/co supply

[robg7816]

Hi

Looking for some advice on whether input VAT can be reclaimed in the following situation.

I have three entities which are VAT grouped: Holdco is the parent company and employs staff and incurs all trading business costs. It charges a monthly management/servicing fee to two wholly owned subsidiary SPVs which are lending companies, as lending companies the supply is VAT exempt.

The companies were all registered for VAT and VAT grouped so that no VAT was chargeable on the i/co management charge.

Can the input VAT be reclaimed within the Holdco even though it makes no supplies outside the group?

[Trevor S]

Hi,

HMRC”s detailed guidance is in notice 700/2 https://www.gov.uk/guidance/group-and-divisional-registration-vat-notice-7002. But, assuming that all three members of the group are UK based, you need to consider the group as if it was a single organisation.

No VAT is charged on the management charge because the supply is “internal”, within the group. The ability of the group to recover VAT charged by “external” suppliers is dependent upon whether it relates to taxable supplies made by the group to “external” customers.

If the only supplies made by the group to the “external” customers are VAT exempt, the group won’t be entitled to input tax recovery.

[Author]

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