Readers’ forum: VAT challenges with management charges

One of my clients is a large trading group consisting of a holding company A – and then B C D and E as subsidiaries. A B and C are in a VAT group but D and E are not.

In the year we are auditing many costs were incurred by A which has charged these down to all the subsidiaries as a management services fee. In that year no invoices were raised and the recharges all went through inter-company accounts.

I have advised my client that A should raise invoices with a current date charging VAT to D and E and accounting for output tax on the next group return. Is this correct?

As an added complication E is in administration and likely to be liquidated so the company will not in reality see the reclaim of VAT...