Last updated: 14 October 2026
Can a company reclaim VAT on invoices paid by another company?
Usually not, if the invoice is addressed to the other company. VAT can only be reclaimed by the business that received the goods or services, used them for its taxable business and holds a valid VAT invoice in its own name. If Company A pays a supplier’s invoice that is addressed to Company B, Company B can usually reclaim the VAT as long as the supply was made to it. Company A can’t reclaim VAT on it, even though it paid.
The key question: who received the supply?
HMRC looks at the contracts and the reality of the arrangement, not just who paid. The business that ordered the goods or services, and used them, is the recipient. Paying someone else’s bill doesn’t make you the recipient.
Common situations
A sister company pays the bill
If Company A pays a supplier for Company B’s supply, Company B reclaims the VAT. Company A records an intercompany loan to Company B. There is no VAT on the repayment of the loan.
One company buys and recharges
If Company A buys services in its own name and then recharges them to Company B, Company A reclaims the input VAT. It then charges VAT to Company B on the recharge, and Company B reclaims it.
A VAT group
Companies under common control can form a VAT group with one VAT registration. Supplies between group members are ignored for VAT, and the representative member reclaims VAT for all of them.
The director pays personally
If a director pays a company expense personally, the company can usually reclaim the VAT if the invoice is in the company’s name and the director is repaid.
Example
Company A and Company B are both VAT-registered and owned by the same family. Company B orders a £10,000 marketing campaign, but Company A pays the £12,000 invoice, which is addressed to Company B. Company B reclaims the £2,000 VAT. In Company A’s books, the £12,000 is a loan to Company B, not an expense.
What HMRC may challenge
- An invoice in one company’s name for services used by another company
- Missing intercompany agreements
- Recharges that are really disbursements, or the other way round
- Claims by companies that don’t make taxable supplies
Get the supplier to reissue the invoice to the correct company if the details are wrong.
Records to keep
- Purchase orders or contracts showing who ordered the supply
- The VAT invoice in the correct name
- Intercompany loan or recharge entries
- Board minutes for significant intercompany arrangements
Frequently asked questions
Can a parent company reclaim VAT on costs for its subsidiaries?
Only if it receives the supplies itself, recharges them or is in a VAT group with them.
Should we form a VAT group?
It simplifies intercompany charges, but every member is jointly and severally liable for the group’s VAT. Ask us whether it suits you.
What if the invoice is addressed to the wrong company?
Ask the supplier to cancel and reissue it correctly.
Are intercompany loans taxable?
Loans are outside the scope of VAT, but check for any corporation tax implications.
Related: recording VAT on expenses.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with VAT recovery across group companies. See our VAT accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 14 October 2026. It is not personal advice, so speak to an accountant about your own situation.
