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Amendments to VAT returns

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My client and her business partner are starting a new business which relies heavily on an app which customers will subscribe too. They have a UK limited company with a French subsidiary (the business partner is French). They have found about about a grant available for French businesses to help with R&D costs which they would like to take advantage of by putting all of the R&D expenditure through the French company.

However, up until now, they have been paying for substantial R&D costs (app development) through the UK company. VAT returns have been submitted and a VAT reclaim for the VAT on these R&D costs obtained (as the company has not yet generated any turnover). My client is suggesting that they would like to move the contract for the app development to the French company, obtain a credit note for the invoices already paid by the UK company and have these re-invoiced to the French company (using Article 44 - reverse charge). 

This all sounds very messy. But I'm not sure whether there is any reason why they cannot do as they suggest. I am not involved in the French company at all - just the VAT returns for the UK business, which will need to have an amendment made on the next return to repay the VAT which has already been reclaimed on the app development costs and would need to be reimbursed to HMRC.

Any thoughts would be much appreciated! This is a very difficult time - I am trying to work around my children all being off school as we have needed to self-isolate, and I am not sure I am thinking quite as clearly and logically as I usually do. Thanks in advance for any input.

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By DouglasN
19th Mar 2020 13:10

Sounds dodgy. Are the contracts not between the UK company and the Subcontractors (UK based subcontractors?). Are they rewriting history in order to get the grant?

In hindsight, could they not have applied for UK R&D grants?

In Scotland, one of the conditions is that you cannot apply for a grant for a project which you have already started - might a similar restriction apply in France. How certain are they that they would be awarded a grant in France.

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By Les Howard
19th Mar 2020 15:25

I am not sure you can reverse the previous invoices in the way you suggest. The suppliers' contracted with the UK company after all. But you may consider some transfer of interest or even intellectual property from the UK to the French company.
I would strong recommend you seek paid professional advice on the issue. (And do mention that cash is tight at the outset.)

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