I have 2 new clients. A Limited and B Limited. A Ltd is owned 100% by Mr X and B is owned 100% by Ms Y. X and Y are not related.
A Ltd has been trading for several years just below the VAT threshold (until taking account of services provided below). B was set up about 18 months ago.
Some of A Ltd's employees have been helping B Ltd and B Ltd has been making payments to A Ltd for these services. B Ltd has no employees.
A Ltd has not included charging for these services when calculating whether they have gone over the VAT threshold. A Ltd does domestic cleaning and B Ltd does garden maintenance. The owner of A thought that he only needed to include his sales of cleaning services in calculating his sales towards the VAT threshold; he didn't realise he also needed to include the recharge of staff services to B Ltd.
If these staff services are included in A Ltds turnover then A Ltd actually went over the VAT threshold several months ago.
I assume I am correct that these staff services should be included in A Ltd's sales. If so then they should have VAT registered several months ago. Not by much but since October last year their running cumulative 12m sales (including the staff services provided to B Ltd) have been between 87,000 and 90,000. If they had been registered since last October that would be 8 months sales at about 7,500 sales per month so 1,500 VAT due per month (very little VAT to reclaim as most of inputs are labour costs).
I have not come across late VAT registration before. Do HMRC have any leeway in a situation like this or are they likely to hit them for the 1,500 x 8 months.
As A Ltd is not making any significant profit and there are no overdrawn balances on the DLA such an assessment would probably make A Ltd insolvent.
Not sure what to do or recommend here.
Replies (6)
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Making supplies to a sister company is still making supplies. They'll be treated just like any other business which registered late.
Expect nothing less.
Were the charges at cost or was there a profit element? If the former, might the payments fall within paymaster services? See VAT 700/34 para 3.3