Group VAT registration - Bookkeeping entries

how to account for vat in subsidiary on vat return

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Dear all. 

Because of the mess that a client continually makes with intercompany sales and purchases, it has been decided that two connected (100% the same single shareholder/director companies) should now become a group of two companies (A owing 100% of B) and apply for VAT registration in A.  Two companies are still needed because of complicated licencing restrictions and insurance cover for US purchases and onward sales.

This VAT group  will eliminate the extra VAT suffered mainly by B on its sales of products to A (remaining unpaid for some considerable time whilst A happily recovers the VAT suffered on purchases from B).  Yes,I know that they should treat these as normal sales/purchases but that is just not going to happen despite many years of metaphorical head banging.

So, my query is, how do we account for VAT charged and suffered by the subsidiary in the group VAT return?  The problem is probably compounded by MTD for VAT as all of the electronic capture of the original transactions madeby B will stay in B's records.  Has anyone/does anyone deal with this cenarion and, if so, I would be very grateful if they could let me know how that get round these issues.  Thanks for any comments

 

Andy

 

 

Replies (4)

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RLI
By lionofludesch
19th Mar 2022 17:45

They're effectively loans between the two companies.

One company pays the input tax, the other reclaims it.

Prepare separate VAT accounts as usual and charge or credit the balance to the intercompany loan account.

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VAT
By Jason Croke
19th Mar 2022 19:57

If A is reclaiming VAT from invoices issued by B, but A is not paying B, then A has to repay the VAT it has reclaimed back to HMRC after 6 months.

There is no easy solution for MTD, just keep A and B with separate accounts and separate sales and purchases and then run each VAT for A and B and then merge them and file via bridging software (Excel), you can't do MTD in cloud software as yet as QB and Xero don't allow you to have to two companies records under one login/one license.

Within a VAT group, B does not charge VAT to A and vice versa, these transactions (intra group) are outside the scope of VAT.

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Routemaster image
By tom123
20th Mar 2022 17:01

Realistically, if the client cannot cope with multi company bookkeeping, then they really shouldn't have been let loose with more than one entity..

I know that doesn't really help - but, guess what, some of this stuff is fiddly and requires trained staff - who'd have thought it?

Presumably both entities accounting have the same VAT periods?

Is it cloud software - and something you can control remotely?

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avatar
By Andywho is fed up
21st Mar 2022 10:34

Thanks everyone

Two companies is too much but its better than the three we had until last year.

I'm hopeful we can eventually get sales in B to run through A and US purchases made by B immediately resold to A, thus effectively making B a shell to cover the US concerns, but we'll see. There is a good bookkeeper in place but I thought it best to ask the question before she does so I don't look too stupid.

Also, thanks for the earlier replies which have proved useful and echo my thoughts that the MTD electronic trail is just a non-starter in this scenario. Incidentally, its desktop Sage!

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