Recharging part of cost to sister company

[Kitty Kat]

A pays £1,000 for property insurance for a building. Its sister company B also occupies it, so A charges B 50% of the insurance costs.

Does the 50% magically acquire VAT (this is clearly(?) not a disbursement as they are 'keeping' half the service for themselves) when charged onwards?

[Kitty Kat]

Haha, Googled a bit more and found a forum post from another site about this, stating that unless the insurance was for company B and the same cost was recharged, it needs VAT adding (so in my case, VAT needs to be added)

Given the advice was from someone called 'Spidersong' I am inclined to believe it... hehe

[spidersong]

What was the context on what I said, as normally the recharge of building insurance costs would be further payment for the underlying supply, so if an exempt rental was charged then the further payment would be exempt, but if a taxable rental then a further taxable payment would be created. So the advice may not port over exactly to your situation.

Regardless of what it is; the underlying advice is that recharges of insurance cannot be disbursement unless the third party has the policy in their name, and the costs go exactly over, so this as you say clearly isn't a disbursement. So the supply made for the consideration is something other than insurance what we need to decide is what that supply is and hence what its liability is.

Company A is likely to have Partial Exemption issues in relation to this recharge, and indeed if they didn't recharge then there'd be either business/non-business issues with their acquisition or leasing of the building, or possibly barter and PE issues if B provided anything to them in return for the right to occupy. Of course it could be that it's joint occupation with no defined areas and so not a right over land and taxable by default anyway.

[Kitty Kat]

Of course it could be that it's joint occupation with no defined areas and so not a right over land and taxable by default anyway.

This. In fact I was mistold, the insurance was more like business insurance than property insurance, so as far as I can see it will always be recharged including VAT.

[Generix]

Could it not be a block policy....similar thing discussed here:

http://www.taxationweb.co.uk/forum/timing-of-receipts-via-intermediary-t34961.html?hilit=insurance#p127001

Not really with it yet (give me a couple more days ) - from memory this was a similar issue though ?