Duplicating Sales and COS but does not impacting bottom line? Legal?

Duplicating Sales and COS but does not...

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Hi all, I hope that you can advise on the following, with the inception of a new company where two directors owning 100% of company A will own 48% of company B. Both want recognition of the sale, can't find anything that says this cannot be done as they are all legitimate transactions but I just don't feel comfortable with it. 

Current situation

Company A supplies Contractor to Customer

Customer pays Company A = Sales £11,750+VAT

Company A pays the Contractor = COS £9500+VAT

This is in relation to all the work done by Consultant, so is paid a consultant fee (% of margin) = £1,125

Company A accounts

Sales £11,750

COS   £9,500

GP    £2,250

Fee    £1,125

NP     £1,125

Get's interesting

Consultant sets up Company B

Company A supplies Contractor to Customer

Customer pays Company A = Sales £11,750+VAT

Company A pays the Contractor = COS £9,500+VAT

Which is as per normal but then

Company B invoices Company A = COS £9,500+VAT

Company B invoices Company A = Margin (COS) £1,125+VAT

Company A invoices Company B = Sale £9,500+VAT

Company A accounts

Sales £21,250

COS   £20,125

GP    £1,125

NP     £1,125

 

Company B accounts

Sales £10,625

COS   £9,500

GP    £1,125

NP     £1,125

 

Consultant would like his company to be recognised with the sales work that he has done before the inception of his company, bottom line for both companies are completely unaffected, zero tax effect both VAT and CT as neutralizing invoices. The reason this has to happen is only because it is difficult to move contract that is in place between Company A and Customer for Contractor to Company B. Anything new will be solely between Company B and Customer.

So in effect doubling Sales and COS until contract expires within the year.

What I wanted to do was keep the normal process in place and then get Company B to invoice Company A only the margin £1,125

Replies (4)

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By cheekychappy
31st Jul 2015 12:25

I couldn't be bothered to check that your figures stack up.

 

What's the point in the above set up?

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By jndavs
31st Jul 2015 14:25

Sorry, I could not resist!

You have two cows.

You sell three of them to your publicly listed company, using letters of credit opened by you brother-in-law at the bank, then execute a debt/equity swap with a associated general offer so that you get all four cows back, with a tax exemption for five cows.

The milk rights of the six cows are transferred via an intermediary to a Cayman Island company secretly owned by the majority shareholder who sells the rights to all seven cows back to you listed company.

The annual report says the company owns eight cows with an option on one more.

Sell one cow to buy a new president of the United States, leaving you with nine cows.

Thanks (2)
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By Sandnickel
31st Jul 2015 14:07

no need for complication
Company B invoices for contractor + "fee". This is company A Cost of sale £10625 then A invoices £11750 as normal. Simple.

Thanks (0)
By Democratus
31st Jul 2015 16:53

What a tangled web we weave...

...when we practice to deceive.

 

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