VAT charged on salary between entities

[J7J]

Hi,

Entity A and Entity B have the same owners.

Entity A needed an employee for a period of time and Entity B had an employee with spare time available.

The employee rendered services to Entity A, but Entity B paid the employee's salary. Entity A reimbursed Entity B for the employee's net salary.

Should the invoice between Entity A and Entity B carry VAT if both entities are VAT registered? If so, how do I explain this is a VATable supply as salaries as such are not vatable and this is a reimbursement for salary?

Thanks!

[CLIVE-TRIANGLE]

Hi J7J

Yes it is a vatable supply.

In entity B it is revenue, not a reduction of expense.

In entity A it is a direct cost, not an employment cost or personnel cost.