Could someone please help me get my head around this situation.
There are 2 LLP's which both have seperate vat numbers. LLP A pays for services and charges a portion of these to LLP B. LLP A also entertains clients of both LLP's so charges a % of this as well.
LLP A cant reclaim vat on the client entertainment but has to charge it to LLP B as it is a seperate supply and a recharge.
Can LLP B therefore reclaim this vat on this supply or because it is for client entertainment is the answer no.
When you say clients of both A and B, do you mean that the two LLPs have clients in common or that the entertainment is both for clients of A and for clients of B?
Clients in common, both business' are in the same sector they are only seperate LLP's to split the geographic location between north and south. The client however is a national client.
So from the original post you believe that the cross charge for the client entertainment or any disallowed item for vat purposes cant have the vat reclaimed even if LLP B isn't involved in the entertainment or whatever the item is.
As I understood it, A can't claim because it is entertaining its own clients. They happen to be clients of B too, hence recharge plus VAT for service of entertaining B's clients. B is then paying for the entertainment of its clients so cannot claim. I checked the exemption that applies where VAT has been disallowed in the chain, but it only applies to the supply of goods. So I agree with you that you have a horrible VAT situation that a group registration could cure.
