Andrew Needham looks at the VAT consequences of supplying continuous supplies of services between related parties where the recipient is not fully taxable.
In normal circumstances, a business that supplies services over a period of time (known as continuous supplies of services) only has to account for VAT (the tax point) on those supplies when it receives a payment or raises an invoice; whichever is first.
They include things like accountancy, management services, leasing of equipment, hire of staff, etc. where they are provided on an ongoing basis.
Avoidance scheme
Some businesses took advantage of these tax point rules when supplying services to a connected party that could not recover all or any of their VAT. They would supply the associated business with services and would not issue an invoice or receive a payment, so the associated business would not incur any irrecoverable VAT.
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