How to reduce VAT charged and receive investment?

I have one client that I invoice, we have a close relationship. See more in body.

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I have one client that I invoice and VAT is added to the invoice. As we have a close relationship, is it possible for this client to invest in my company by becoming a shareholder or a director rather than paying an invoice? This would mean each investment they make each month would not have to include VAT? I could then reclaim VAT spent on my goods from HMRC because I would then be paying VAT but not be charging it? Could I then myself as a director and shareholder take a dividend from the investment made by this other company investing each month into the limited company?

They are not a VAT registered company as they are a US company which is why they want to reduce their VAT obligation.

I of course will definitely not do this if this idea turns out to be against the rules/law. It was just an idea that might help.

Replies (24)

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By Cylhia66
21st Apr 2024 08:16

Do you invoice your US client for providing goods or services?

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Replying to Cylhia66:
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By 050968049
21st Apr 2024 08:30

They sell tickets for tours that take place in the UK. I then arrange for freelance tour guides to conduct the tour and also pay for entrance tickets. The entrance ticket is the part that I pay approximately £3 VAT on

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Replying to 050968049:
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By Cylhia66
21st Apr 2024 08:37

You've lost me, sorry.

You initially said "I have one client that I invoice and VAT is added to the invoice", therefore I thought that your question was about the VAT you charged to your US client.

But now you're saying that it's you who is paying £3 VAT on the entrance tickets you are buying from them? is that right?

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Replying to Cylhia66:
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By 050968049
21st Apr 2024 08:59

I charge VAT when I invoice my US based client, my only client. But when I buy tickets to enter a site I then pay VAT on the ticket. I charge my client approximately £4.50 in VAT, then pay approximately £3 in VAT when I buy a ticket to a tour site.

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Replying to 050968049:
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By Cylhia66
21st Apr 2024 09:14

I think I understand now. So back to your question. If the US client invests in your company but you draw all the funds as dividends, he's not getting a return on investment, therefore he is not an investor, right?

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Replying to Cylhia66:
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By 050968049
21st Apr 2024 10:02

That's the question I guess. Must an investor expect a return? If dividends were given to A shares but not B shares then the investor wouldn't receive any return? Would this fall foul of any rules?

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Replying to 050968049:
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By Cylhia66
21st Apr 2024 10:42

I would say that an investor that doesn't expect a return is a lender. Then the loan rules would apply.

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Replying to Cylhia66:
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By 050968049
21st Apr 2024 11:17

Thanks for your responses which have been polite and helpful

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By paul.benny
21st Apr 2024 10:13

So you have one party making repeated investments on which they get no return. And then you are providing a service for which you don't get paid.
Your company will gain an additional shareholder with all the concomitant obligations.

Seems an unduly complex way to avoid modest amounts of tax. And it runs the risk of challenger for the sham it clearly is.

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Replying to paul.benny:
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By 050968049
21st Apr 2024 10:23

Thanks, looking to see if it was plausible but if it is not then I will continue to operate in my current way

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By Matrix
21st Apr 2024 10:48

This doesn’t make sense, so you have determined that the place of supply is in the UK when you invoice them but why is it not in the UK when they sell tickets? Why are they not VAT registered?

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Replying to Matrix:
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By I'msorryIhaven'taclue
21st Apr 2024 11:07

They're selling tickets in the USA to US tourists. I think.

This is all a wind-up.... I want to reclaim input VAT on tickets that I will not be re-selling but exchanging in return for investment funds. A cunning plan, Baldrick!

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Replying to I'msorryIhaven'taclue:
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By Leywood
21st Apr 2024 11:11

An investor who wants nothing in return.

A business sugar daddy.

OP you missed 1 April.

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Replying to Leywood:
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By 050968049
21st Apr 2024 11:17

Nice to know community spirit is alive and well

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Replying to 050968049:
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By I'msorryIhaven'taclue
21st Apr 2024 11:36

No gaslightin' please.... you've only been a member for three and a half hours so don't go black-ballin' yourself.

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Replying to I'msorryIhaven'taclue:
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By 050968049
21st Apr 2024 11:54

Being kind costs nothing my friend. Might want to keep that in mind

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Replying to 050968049:
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By FactChecker
21st Apr 2024 13:03

Why do anonymous posters addressing other anonymous posters with whom they've taken (unnecessary) umbrage insist on addressing them as 'my friend'?

BTW most of us left school many, many decades ago ... one of the joys of which has been the subsequent lack of hectoring 'advice' from unappointed teachers.
You might want to keep in mind *who* was actually *asking* for advice ...

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Replying to I'msorryIhaven'taclue:
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By 050968049
21st Apr 2024 11:16

Nice to know community spirit is alive and well

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Replying to I'msorryIhaven'taclue:
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By Matrix
21st Apr 2024 11:44

But it’s the same supply isn’t it? Not a VAT expert but the OP may benefit from one.

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By Leywood
21st Apr 2024 11:31

Google a simple definition of an investor

-an individual/organisation that puts money into an entity such as a business for a financial return. The main goal of any investor is to minimise risk and maximise return.

Btw, this forum is for professionals exchanging views on technical issues, not a forum for tax advice/evasion or avoidance.

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By DKB-Sheffield
21st Apr 2024 12:35

This sounds like a classic cunning plan discussed in the Dog & Duck last night, and put on here whilst nursing a hangover!

However, if it isn't, and if you have actually given this some serious thought in a state of sobriety...

The VAT implications, on face value could be more complex than you imagine. With cross-border, B2B and your sole client's (possible) B2C transaction, whether input VAT can be reclaimed at all (if there is no supply), or whether you are - indeed - making a supply (which is likely... albeit under a different name). In reality, from your post, it's not crystal clear Who is Selling What to Whom OR Where! As others have said, your US client may have their own UK VAT obligations. My gut (which is sometimes very wrong) suggests that based on your OP, you wouldn't have a leg to stand on... but detailed review (not for an open public forum) may consider matters that aren't immediately apparent.

You also have an apparent trade (for CT) so, are you anticipating your plan to also result in no ongoing trade? Seems unlikely - particularly as you are clearly carrying out some level of trade in buying goods/ services for recharge!

However, and more importantly, you need to address the second part of your question - whether the funds can be paid as dividends. Your proposal is assumedly to create new shares either at premium, or full NV. Both are non-distributable reserves so... no a dividend distribution is unlikely. That would leave salaried extraction (with the NI implications) but, in light of my CT comment... you are suggesting there is no trade, therefore, there is unlikely to be any available CT relief.

Aside from the above, unless your shares have *no rights* (highly unlikely), you could very quickly see your own rights diluted. You could lose control of the voting power, lose rights to the majority of assets on winding up... in short, you could easily lose your company to the US client!

Quite frankly, your plan has more holes than a sieve - VAT being just one of those holes.

You may wish to discuss this further with your accountant, or tax adviser! Is it possible that you are trading below the VAT threshold? Is it possible to restructure your contractual agreement with the US client and your UK suppliers to that of an agency agreement - potentially taking you out of the charge to VAT? Should your US client be VAT registered in their own right?

None of the above can be attempted on a public forum. You should consider specific (paid for) advice - cue your accountant/ tax adviser.

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Replying to DKB-Sheffield:
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By FactChecker
21st Apr 2024 12:53

Whilst that's a great list of just *some* of the potential (and in many cases likely) wrinkles in this cunning plan, you must have the patience of a saint to keep going.

Personally I stopped after a few seconds on discovering (I think, given that the story isn't exactly crystal clear) that it seems unlikely input VAT will still be reclaimable as there's to be no supply.

OP: "I could then reclaim VAT spent on my goods from HMRC because I would then be paying VAT but not be charging it?" ... if that bit is scuppered does that end the plan, or are there other aspects that you feel still have attractive legs?

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Replying to FactChecker:
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By DKB-Sheffield
21st Apr 2024 14:03

FactChecker wrote:

if that bit is scuppered does that end the plan, or are there other aspects that you feel still have attractive legs?

My view is that it has as many legs as a snail... but there are some that may argue snails have one (or many) legs!

However, I've approached it from the different angle of... "Will the objectives be met - if the VAT issue can be overcome?"

The intention is to extract funds via dividends. There will be no profits (only losses), and no other distributable reserves. That objective cannot be met. There is little point in even considering any further avenues.

FWIW... the VAT issue - as presented - is the OP wishing to have cake, and eat it! Claim input VAT on purchases but make no onward supply. It's a dying Duck (and possibly his dying friend the Dog) - more likely because there IS an onward supply, contrary to what has been suggested by the OP. Calling something an investment, when it is actually a payment for goods and services by way of equity doesn't change the substance of the transaction for VAT supply purposes.

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VAT
By Jason Croke
21st Apr 2024 14:40

Sounds like TOMS is potentially in play, and OP may not be able to reclaim VAT on their costs historically or in future.

In the alternative, going the investment route, can't see there being a supply made and if no supply then no input tax recovery.

OP, are you a ticket reseller (snapping up Taylor Swift tickets using bots for £50 and then selling them for £2k)...because I've heard this sort of idea before and it was coming from ticket resellers.

This is the sort of query that needs detailed understanding, why USA aren't VAT registered, what OP is selling, is it TOMS, is it something else, place of supply rules, etc.

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