If you create a holding company to provide management services to one or more subsidiaries, it can either register for VAT individually because it is making taxable supplies to its subsidiaries, or else it can register as part of a VAT group.
However, what if it is a ‘pure’ holding company making no taxable supplies at all? Although a pure holding company makes no taxable supplies, it will receive taxable costs for professional services such as accountancy and legal fees.
How do you recover VAT on such costs?
Well, because it makes no taxable supplies, it cannoyt register for VAT in its own right. However, it can register for VAT as part of a VAT group, which then enables it to recover all the VAT on its overheads.
However, although HMRC have accepted this in their own internal guidance (HMRC Manual V1-13, Section 15, para 15.3) and published a News Release as long ago as 1993 (News Release 59/93), some VAT Officers seem unaware of it, and say it cannot register for VAT. If this happens, you should draw the Officer’s attention to the above publication. This should speed up your VAT registration, so that you can quickly reclaim all the input VAT you are entitled to!
A blog providing UK tax information and planning ideas from John Pointon, Accountant, Business and Tax Consultant. Please send any suggestions for topics you would like to see covered to me at jpointon@gmail.com or 34 Lightley Court, Sandbach, Cheshire, CW11 4QA or phone 01270 763 466.
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And one awaits the outcome of the infraction proceedings that the European Commission has started against the UK for the way it applies the VAT grouping rules. If the EC is successful the UK would have to remove from VAT groups any company that is not making taxable supplies. This would include not just 'pure' holding companies but also any dormant company.
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