Loans between a group of companies

[D11ART]

I have a group of companies where the parent company is dormant trading and not registered for VAT. There are 4 subsidary companies and all are trading and separately registered for VAT.

If one of the companies within the group make a loan to another of the companies within the group, is the transaction of either making the loan or repaying the loan within the scope of VAT ?

I have always thought that such transactions are not within the scope and therefore neither of the companies are subject to output or input VAT.

I would welcome any comments on this please.

Many thanks in advance.

Darren

[spidersong]

Assuming that the loan is made in the course of business then it is within the scope of VAT but is exempt from VAT under Group 5 of Schedule 9 VAT Act 1994.

So there is neither Output Tax nor Input Tax on the loan itself. However if one of the companies makes a habit of making loans then it will fall to be partially exempt and may face restrictions on the tax it can recover especially in relation to direct costs such as any solicitors fees to do with the loan etc.

[pawncob]

Loans within the group are not in the course of business, so they are outside the scope of VAT.