VAT treatment of management charges and other intra-group payments
VAT treatment of management charges and other intra-group payments

The following Tax guidance note provides comprehensive and up to date legal information covering:

  • VAT treatment of management charges and other intra-group payments
  • What are management charges?
  • When does VAT apply to management charges?
  • Consequences of VAT on management charges
  • Can VAT on management charges be avoided?
  • Other intra-group payments
  • Practical issues

What are management charges?

Management charges generally refer to the position where group companies make intra-group supplies of management services and charge for such services. This is frequently the case when one group company pays for various services provided to the group as a whole and recovers a proportion of costs from the other companies within the group. Such arrangements are common in relation to overhead costs such as rent, office equipment, rates, heating, stationery, telephone etc. This type of payment structure is most common in corporate group structures (ie holding companies with subsidiaries) but can also involve independent businesses and organisations coming together to form cost sharing groups.

Management charges may also be charged intra-group as a result of transfer pricing adjustments which seek to ensure arm's length prices are paid between connected parties for intra-group supplies. For information on transfer pricing, see: Transfer pricing subtopic.

Management charges also often involve costs in respect of supplies of staff. This Practice Note does not consider intra-group supplies of staff in detail. For more on the VAT treatment of supplies of staff see Practice Note: VAT issues on the supply of staff.

The question of whether the company providing the management services can recover its input VAT is outside the scope of this Practice Note. For more on input VAT recovery of management