I have two brothers - one is a sole trader one a limited company both vat registered both with similar business's.
I have completed the sole trader accounts last year and just completing the limited company accounts.
There are transactions between the two companies - both making profits which is fine. Recharges have been made from one company to the other and vat declared which is fine as sometimes costs are shared etc.
The limited company profit ratio is lower than that of the sole trader - more than I would have expected.
I have queried this and both business owners have agreed that it is likely due to the reallocation of expenses being disproportionate. The bookkeeping is poor for both to say the least and they have now appointed an independent bookkeeper going forward.
They have advised that even though there is a possibility that the recharge is disproportionate there is no way of identifying validly any additional charge to make and wish the figures to stay as they are.
So there doesn't seem to be a vat avoidance issue - as a charge in one would result in a vat liability and vat claim in the other. So no loss of vat.
Tax wise the profits are higher in the sole trader so given tax rAtes and national insurance there isn't really a tax loss or avoidance in that they are trying to pay combined profits at lower corporation tax rates.
So aside from a related party note in the accounts - what else can/ should be done on this?
Many thanks in advance