VAT groups - an easy one

by **Kitty Kat** on Mon Sep 26, 2011 9:46 am

Hi all

Never done a VAT group before, so this will be very basic. Company A owns Company B entirely. Company B is happily trading and is fully taxable, registered and regularly paying net VAT each quarter.

Company A is purely a holding company, it owes the bank £x which it will repay via dividends and management charges from B. So the choice is, register A, charge VAT to B on the management charges, recover all VAT (B recovers its management charges paid VAT). Or, make them a group company, ignore all VAT on the management charges and just submit one group return, basically with all B's outputs but with A and B's inputs.

Plan B seems the best, same overall effect but with less messing about charging the subsidiary VAT which it then recovers. Or have I missed something?

by **Generix** on Mon Sep 26, 2011 9:57 am

Nope you pretty much have it.

A few things to note; HMRC no longer like to register passive holding companies within VAT groups, however in your situation as there are management charges, providing these can be 'justified' (not best word but it's early (for me) monday morning) then you should be all good.

If the Parent company ever wants to sell the sub, then part of the risk which will reduce the price of any deal is the fact that the sub would have been jointly and severally liable for any debts arising in the VAT group during its time in the VAT group...that means if the sub is sold, and HMRC go and do a VAT inspection on the old group registration and find some big errors, then the buyer of the sub has a big potential liability sitting over its head. (Of course usually there is a tax waiver which covers this between the two companies, but if A goes bust the sub has no recourse to HMRC).

Hope that makes sense?

by **Generix** on Mon Sep 26, 2011 9:58 am

you other option is looking at the two company's staggers and aligning them so that you get a cashflow advntage by recovering the VAT from HMRC before it is payable by the other company to HMRC.

Only worth it if the charges are substantial though imo.

by **Kitty Kat** on Mon Sep 26, 2011 10:02 am

Generix wrote:you other option is looking at the two company's staggers and aligning them so that you get a cashflow advntage by recovering the VAT from HMRC before it is payable by the other company to HMRC.

Only worth it if the charges are substantial though imo.

Thanks, I'll bear that in mind. The whole thing seemed simple, but I often don't see the pitfalls.

Thank you very much for your help.

by **Generix** on Mon Sep 26, 2011 10:26 am

Kitty Kat wrote:
Generix wrote:you other option is looking at the two company's staggers and aligning them so that you get a cashflow advntage by recovering the VAT from HMRC before it is payable by the other company to HMRC.

Only worth it if the charges are substantial though imo.

Thanks, I'll bear that in mind. The whole thing seemed simple, but I often don't see the pitfalls.

Thank you very much for your help.

On a side note, I have actually seen a big big deal fall through all because the seller would not provide a bank guarantee to cover this potential VAT exposure to the buyer. This was exceptional though, always worth pointing out the joint and several point and the potnetial negative pricing impact this may have if the comapny is ever to be sold - just as a caveat.