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Allocating staff costs across two companies

Is it easiest to invoice staff costs to new branch (separate company)?

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My client is the director of two separate limited companies, both running the same business i.e. the nature of the businesses are the same and under the same company logo. The only difference is the locations. One business runs from a (new) shop and the other from mobile vans.

The (new) shop is not registered for PAYE, but the employess of the original business are working there sporadically. My question is what is the best way to assign the staff costs? Obviously in the shop's accounts it should reflect the expense of using staff even though the payroll is being run by the original company.

Should the original company simply invoice the new shop for the hours their staff worked?

Thoughts on this will be greatly appreciated.

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By Hugo Fair
27th Jun 2022 12:42

Before you tackle the allocation of costs, it seems to me that you (or your client) need to establish the facts.

In particular the employment relationship between the van-based company and its employees (including whether the contract allows for them to be 'allocated' to another business)? And whether or not the workers are also employees of the shop-based company?

BTW I've skipped over why the director (sole director? / sole shareholder?) wants to keep the businesses separate - as a lot of the 'benefits' of doing this won't transpire. For instance the two businesses will be treated as one in terms of any need for VAT registration.

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Replying to Hugo Fair:
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By paul.benny
27th Jun 2022 13:37

+1

I would actually say "why two companies" is the bigger question. It *might* protect the van business if the shop fails. But it creates a whole lot more accounting and admin effort in recharging costs one from the other. And that's before Client starts moving stock from one other the other or using cash from one to support the other.

Which entity is the shop lease in? (Bet it's the original company)

Is either/both company VAT registered? All the cross charges are potentially in scope thereby accelerating the requirement to register.

etc

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paddle steamer
By DJKL
27th Jun 2022 13:39

Have you considered possible vat issues?

Is there joint employment?

Is there a Paymaster arrangement?

https://www.gov.uk/guidance/companies-that-supply-staff-and-staff-bureau...

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By David Ex
27th Jun 2022 14:17

Employment law? Liability insurance? Lots of potential issues in addition to those mentioned.

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By Paul Crowley
27th Jun 2022 14:51

Old company
Assumed registered for VAT as it has Vans in the plural, employees, and a director who I assume is not working for free
Any charge will have VAT added
A defacto mixing of Logo staff, management, product does indicate that it may well be one trade.
If both registered then do not short cut unless a VAT group.

Subject to the above one can charge management fees to the other, but they need to be justifiable as a valid expense in the paying company

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By MrsNewb
29th Jun 2022 11:15

Thank you for your responses.

Now aware of disaggregation of business activities I am discussing it with my client, who may cease the separation and reconsolidate back to the original company. Which as one person pointed out will also be a lot less accounting and admin and all round headache!

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Replying to MrsNewb:
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By Paul Crowley
29th Jun 2022 11:18

Was the intension that the new company could trade until over £85,000 before registering for VAT?

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Replying to Paul Crowley:
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By MrsNewb
29th Jun 2022 12:14

Not entirely. The 'new' company is in fact an old company that used to trade in a completely different service, but it owed the director (balance on the director's account) which if it started turning a profit he was hoping to be able to draw down from.

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