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Related Company VAT Transactions (Cash/Invoice accounting loophole?)

Related Company VAT Transactions (Cash/Invoice...

The infamous, reputable and infallable "Bloke Down The Pub & Co." have discovered another gem in the plain sight of the tax community. But we've failed to see it apparently! Shame on you.

A client, who happens to have two VAT registered Companies, has received some excellent advice to issue an invoice, from one to the other... for say, management services or whatever you like, with incredibly generous payment terms as you would naturally expect.

The idea being one Company is on the invoice accounting basis, the one receiving the input vat charge, whilst the "service provider" is on cash accounting. Effectively, this generates an interest free loan.. for as long a credit term as one Company will give the other... All courtesy of the VAT man! Very generous.

My question is.. This smacks of fraud. Surely not allowable, right? But can the boffins point to any cases where people got smacked bottoms?

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24th Nov 2011 18:11

unpaid suppliers

if the invoice is not paid within 6 months the VAT has to be repaid. but being an accountant, I am sure you knew that. Otherwise, I guess the shame is on you.

 

 

 

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25th Nov 2011 09:52

.

I guess you're right!

 

Thank you all the same.

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25th Nov 2011 09:57

Cash accounting

HMRC have power to withdraw use of Cash Accounting 'for the protection of the revenue.' Any arrangement as described is an improper use of the Scheme. HMRC would write to withdraw use of the scheme.

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Kazmc
25th Nov 2011 10:42

.

Their problem would be in discovering such abuse of the scheme though.

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cathygrimmer
25th Nov 2011 11:08

Cash accounting

of course

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