How to account for French subsidiary

Client has French subsidiary - do I have to include in UK accounts

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Our new UK limited company client (FRS105 but that might have to change) is trading through a French subsidiary (succersale).  The VAT number is French as is the company number quoted on invoices.  However, the sales receipts are being paid in to the UK company bank account.

The client and I are at odds as to whether the activity of the subsidiary needs to be included in the UK accounts.  My rationale is that as they've mixed things up by taking the receipts in to the UK limited company, I need at least to see the accounts of the French subsidiary so as to determine which entity the sales are being recorded in and whether the receipts are actually receipts of the UK company or of the French subsidiary.

I will confess that I have never done a foreign sub in FRS105 accounts.  Logic tells me that, actually, if the French sub is invoicing and declaring the VAT in France, the UK company actually has no income as far as FRS105 is concerned.

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By taxdigital
20th Nov 2023 10:13

bendybod wrote:

Our new UK limited company client (FRS105 but that might have to change) is trading through a French subsidiary (succersale).  The VAT number is French as is the company number quoted on invoices.  However, the sales receipts are being paid in to the UK company bank account.

The client and I are at odds as to whether the activity of the subsidiary needs to be included in the UK accounts.  My rationale is that as they've mixed things up by taking the receipts in to the UK limited company, I need at least to see the accounts of the French subsidiary so as to determine which entity the sales are being recorded in and whether the receipts are actually receipts of the UK company or of the French subsidiary.

I will confess that I have never done a foreign sub in FRS105 accounts.  Logic tells me that, actually, if the French sub is invoicing and declaring the VAT in France, the UK company actually has no income as far as FRS105 is concerned.

To me this reads like Wikipedia page. What's your question please?

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By paul.benny
20th Nov 2023 11:59

I think you need to dig a little deeper. What's the commercial relationship between UKCo and FrenchCo? Which one is buying the stock/providing the service/paying the operating costs? Why has Client set up FrenchCo and what was the advice that led them to do that. If there was a bit of DIY here, this may not be the appropriate structure.

Does Client have a local accountant in France? If support is needed there, accountantccole of this parish is a UK accoutant working in France (no connection - only know her through her posts here)

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David Winch
By David Winch
20th Nov 2023 12:33

I am intrigued by the AML aspects of this in terms of 'Know Your Client' and 'AML Risk Assessment'.
David

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Caroline
By accountantccole
20th Nov 2023 12:56

Succursale is a branch, not a subsidiary, so it is the UK company that is trading in France.
Ideally your bookkeeping needs to be kept in a format where the French income and expenses are readily identifiable from the UK ones so you can prepare branch accounts. As a minimum you need to have software that can track the transactions in Euros. Electronic invoicing is coming in soon so may be another consideration.
The TVA account will need to be tracked separately from VAT. Xero lets you have multiple codes but can only report in GBP normally so it requires quarterly adjustments.
Be warned some French accountants will merrily prepare branch accounts with no reference to the UK figures and will refer to intercompany balances that don't really exist or ask for invoices between the two.
There may be scope for cross charges or abatements of income on the branch accounts so don't let the French accountants run free on it!
Also be aware that the branch will have a 3 month filing deadline so you need to be on top of the UK side of things with that in mind.
We are based in France so specialise in this sort of set up. Be careful as there may be things you miss in the "global" accounts prepared in the UK if you don't know enough about the French side.

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Replying to accountantccole:
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By taxdigital
20th Nov 2023 14:03

accountantccole wrote:

Succursale is a branch, not a subsidiary, so it is the UK company that is trading in France.


In that case they have this option of making an election under s.18A CTA 2009 to exclude the branch profits/losses for UK tax purposes.
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Replying to taxdigital:
Caroline
By accountantccole
21st Nov 2023 11:42

Potentially - depends how clear cut the activities are in UK/France

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By Tax Dragon
21st Nov 2023 07:14

"Logic tells me that, actually, if the French sub is invoicing and declaring the VAT in France, the UK company actually has no income as far as FRS105 is concerned."

Ianaa. Does FRS105 really base reporting requirements on VAT (or any tax) treatment? Where's the sense in that?

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