VAT Question - its doing my head in

crazylikeme

Anyone with good VAT knowledge out there?

If company A incurs bank charges that it then passes to another company in the group, is company A required to raise a sale invoice for this and if so does it impact on company's A vat recoverability status?

I am thinking it should't since the service is not provided by company A, rather it is provided by the bank of company A. It is a passthrough cost... Can't find any examples of this anywhere ....

drunkmonkey

Bank charges are Vat Exempt.

crazylikeme

I know.. but is the fact that company A is passing through the bank charges to other company deemed as company A providing VAT exempt service? Would this impact on the VAT input recoverability? I.e would Company need to pro rata its services? I would think that not since it is not Company A providing banking service but the bank? It is doing my head in...

Lockedout2

crazylikeme wrote: »

I know.. but is the fact that company A is passing through the bank charges to other company deemed as company A providing VAT exempt service? Would this impact on the VAT input recoverability? I.e would Company need to pro rata its services? I would think that not since it is not Company A providing banking service but the bank? It is doing my head in...

But is it providing a service or just recovering a cost from a group company?

If you are raising an invoice then I'd imagine it's standard rate.

Timbo1987

How is Company A passing on the Bank Charges - an invoice or some other means?

It should not affect the Vat Recovery rate

You can apply to Revenue to be a VAT Group and do one return for the group and then all inter group transactions are Zero Rated

Howjoe1

If you merely pass them on at the same cost, I think you can show it as a disbursement not subject to VAT. Solicitors etc would do this commonly, where, say, they pay stamp duty on behalf of a client an then when they invoice the client for services provided, they merely charge VAT on there services and recharge the stamp duty without VAT. And that does not impact on there VAT recovery.

Is this scenario similar enough? if in doubt take professional advice.

Paddy001

crazylikeme wrote: »

Anyone with good VAT knowledge out there?

If company A incurs bank charges that it then passes to another company in the group, is company A required to raise a sale invoice for this and if so does it impact on company's A vat recoverability status?

I am thinking it should't since the service is not provided by company A, rather it is provided by the bank of company A. It is a passthrough cost... Can't find any examples of this anywhere ....

I'm a bit confused as to why a group would be recharging something as trivial as bank charges but that's beside the point.

There's Revenue guidance on this area but I cannot lay my hand on it at present. If you are recharging precisely 100% of a particular expense, you can apply the relevant VAT rate to it. If you recharge a different amount, it is subject to VAT at 23%.

There would be no loss of VAT recovery because the company is not carrying on an exempt trade. Furthermore, I assume that any purchase VAT could be specifically allocated to the VATable trade and accordingly no loss of input VAT would occur. You're unlikely to have incurred any input VAT specific to the recharge of bank charges!

As mentioned above, it would make sense to form a VAT group if the financial situation of each group company permits this. You could then charge a reasonable management charge which would be zero rated for VAT purposes and would cover off the costs incurred on behalf of the other group companies such as the bank charges. This would make more sense as it avoids reviewing nominals line by line to recharge trivial items such as bank charges. Obviously, you would need to carry out a broad review of the expenses to ensure the management charge is reasonable and has some basis.

thegolfer

http://www.revenue.ie/en/tax/vat/guide/vat-chargeable.html#section11

Reimbursement

crazylikeme

The bank fees can be as much as half a million a year...so not so trivial

But thank you for your opinions. That sheds some very useful light on things.