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Re-charge entries

Best way to process

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Client has 2 Limited companies, different trades/different shareholdings.

His main Limited (A) rents an office from one of the serviced office space companies.  'A'  sub-lets a desk space to his other Limited, 50% owned (B).   Office space company aware. 

A has just received an invoice for some window signage for co B.    A will re-charge this to B shortly.

Am just checking how this expense and re-charged income should be presented. My thinking is as the cost is not an expenses of A to process it to inter-company (there are inter-company loans to/fro at various times).  But then the re-charge would need to clear this, rather than be keyed to sales.   Is this kind of off-set acceptable?   Or should I book elsewhere?

Thank you.

 

Replies (16)

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paddle steamer
By DJKL
19th Jan 2022 12:59

Be careful with that vat, (Eugene), other than that would not get too concerned.

You could create sales invoices that are posted to a nominal called " recharged costs rebilled "and post costs to a nominal called "recharged costs to rebill."

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Routemaster image
By tom123
19th Jan 2022 13:06

Are you in a VAT group?

If not, you will need to consider VAT on these recharges.

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RLI
By lionofludesch
19th Jan 2022 13:25

Getting paid for somebody else's expenses isn't sales, is it ? I'd post payment and income to some suspense account so that it cancels out.

Not knowing the companies' VAT scenario, I see some possible VAT traps, like to whom are the invoices addressed, is the VAT fully recoverable, is there a group but unless these are problems, I think you're grand.

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Cloud Computing
By ngaccounts
19th Jan 2022 18:49

Leaving vat aside which has already been covered, there rarely seems to be a consensus on this question. I suspect DJKL is right, but i've never liked way it artificially inflates A's revenue in this scenario.

Where it is a simple pass-through I would create a sales invoice from A but net if off against signage costs rather than posting to sales.

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Replying to ngaccounts:
RLI
By lionofludesch
19th Jan 2022 19:26

ngaccounts wrote:

Leaving vat aside which has already been covered, there rarely seems to be a consensus on this question. I suspect DJKL is right, but i've never liked way it artificially inflates A's revenue in this scenario.

Where it is a simple pass-through I would create a sales invoice from A but net if off against signage costs rather than posting to sales.

I think you've misunderstood DJKL's post. He's advocating a minor variant on my own suggestion.

Nobody's suggested that it's sales.

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Replying to lionofludesch:
Cloud Computing
By ngaccounts
19th Jan 2022 20:01

You may well be in right in which case thank you for pointing it out. Id assumed "recharged costs rebilled" would be an income account.

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Replying to ngaccounts:
RLI
By lionofludesch
19th Jan 2022 21:40

An income account is not necessarily a turnover account.

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Replying to ngaccounts:
paddle steamer
By DJKL
20th Jan 2022 12:48

My suggestion of using two accounts was more re controlling costs incurred and invoices issued, using two distinct accounts clearly shows what has happened. We do a lot of rebilling, I have nominal accounts re disbursements/recoveries throughout our books, in fact I tend to set up two for each property we manage where we expend and rebill all or part of the costs incurred.

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Melchett
By thestudyman
20th Jan 2022 12:25

If 100% of the cost belongs to company B, then why cannot B process the invoice themselves?

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Replying to thestudyman:
RLI
By lionofludesch
20th Jan 2022 12:41

thestudyman wrote:

If 100% of the cost belongs to company B, then why cannot B process the invoice themselves?

I'm guessing it's addressed to company A.

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avatar
By FedupBookkeeper
16th Feb 2022 12:13

Hello all
Apologies for not responding sooner, covid got me and Im only now just back in work mode.

Thank you to all who have responded.

I would appreciate some further assistance with the VAT aspect if that is ok, as I appear to be tying myself in knots.

Firstly to answer some of the questions. There is no VAT group. Invoice is indeed addressed to A, landlords seem to prefer it that way as other than this one off they dont really have any deadlings with B.

Suspense/re-charged accounts I will set up.

VAT - On the basis of Lion's usual VAT question, woudl I be correct in saying that as A is being billed for a service that is not being provided to him, he cannot reclaim the VAT. But he would charge VAT to B when he passes the cost on?

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Replying to FedupBookkeeper:
RLI
By lionofludesch
16th Feb 2022 12:28

FedupBookkeeper wrote:

VAT - On the basis of Lion's usual VAT question, woudl I be correct in saying that as A is being billed for a service that is not being provided to him, he cannot reclaim the VAT. But he would charge VAT to B when he passes the cost on?

On that basis, if I buy a Mars bar from the corner shop, the retailer could not claim input tax on the cost of the Mars bar as he didn't eat it.

That's obviously not so. In the same way, if the service cost £100 + VAT, A will be able to reclaim the £20 VAT as it's part of his costs of the subletting. He can bill on £100 + VAT to B. Doesn't have to be £100 but, given the circumstances, I'm guessing that A is not looking to make a profit.

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Replying to lionofludesch:
paddle steamer
By DJKL
16th Feb 2022 12:33

Surely a Lion Bar would have been a better example.

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Replying to DJKL:
RLI
By lionofludesch
16th Feb 2022 12:43

DJKL wrote:

Surely a Lion Bar would have been a better example.

Yeah, it would, actually.

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Replying to DJKL:
avatar
By FedupBookkeeper
16th Feb 2022 13:07

Absolutely.

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Replying to lionofludesch:
avatar
By FedupBookkeeper
16th Feb 2022 13:06

Thank you. Makes perfect sense.

Think I need to go back to bed!

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