Readers’ forum: Can a group registration be formed with no VATable sales?

One of my clients owns two limited companies that are wholly exempt from VAT in the financial services sector. The first company incurs premises and other overhead costs that my client would like to charge to the second business which uses many of the services in question.

However the annual charge – if made on a commercial basis – would exceed the VAT registration threshold and presumably lead to irrecoverable input tax for the second company.

However a colleague has suggested that a group VAT registration would be the solution so that the management charges would be ignored. But how can we get a VAT number from HMRC when neither company has any taxable sales?

Alternatively can we just describe the recharged invoice from company one as ‘rent’ which is exempt from VAT anyway and would therefore be ignored for the purposes of the registration threshold?

Query...