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Sister company VAT account

Vat Sister Company

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The company I work for has a sister company  and we have just received both VAT returns. 

My question is: can I pay the VAT return for the sister company from my company's bank account and what would be the double entry be? 
 

I have posted the VAT for my company (cr bank and dr vat liability) should I cr bank and dr sister company account on the ledger? 
 

Thanks. 

 

Replies (22)

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By Cheshire
05th Mar 2021 16:54

In my humble opinion - no need for anon question.

Why is one sister looking to pay for the other? Has one spent the VAT that they were not entitled to spend, it not being their money, but belonging to HMRC?

So the big sis is lending to the spendthrift little sis.

How are the actual companies related?

How will this be documented might be a more pressing question.

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Replying to Cheshire:
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By Louisa19
05th Mar 2021 17:14

It was paid out of company A’s account as we had enough funds in that account to pay for both rather than transferring the money in the sister’s bank account and then making a payment to HMRC.

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Replying to Cheshire:
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By Louisa19
05th Mar 2021 17:20

Maybe I’m getting confused. Let’s call them company a and b.

Both companies have different names but owned by the same director.

Company A purchases and Sells; company B is purely for assets.

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Replying to Louisa19:
Stepurhan
By stepurhan
05th Mar 2021 17:43

If company B is purely for assets, why does it have a VAT return?

I suspect I know the answer to that, though if I am wrong you may have a VAT issue already. Regardless, it leads to the second question of why A is buying and selling and why B has the assets. It seems an over-complicated arrangement on the face of it.

To answer the given question though, one company can pay the other company's liability provided an inter-company loan is recorded to reflect that. Whether that causes other problems, either now or in the future, is impossible to tell from the question as given.

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Replying to stepurhan:
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By Louisa19
05th Mar 2021 22:36

What problems could it cause in the future?

I was silly, I should’ve transferred the amount and paid it from the company b’s bank account rather than Company A’s

How would I record the inter-company loan?

So far I have cr bank dr vat liability on company’s A’s ledger and cr company’s A’s bank for the company b’s vat liability and dr company’s b’s account on sage.

Have you got any advice on what to do next?

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Replying to Louisa19:
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By Truthsayer
06th Mar 2021 17:04

'Have you got any advice on what to do next?'

Ask your company's accountant to review this whole arrangement, as it looks like the surface layer of all kinds of trouble.

'What problems could it cause in the future?' If you don't know, you REALLY need to do the above.

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Replying to Louisa19:
Stepurhan
By stepurhan
06th Mar 2021 17:19

Quote:

What problems could it cause in the future?


I refer you to my answer raising that point.
stepurhan wrote:
Whether that causes other problems, either now or in the future, is impossible to tell from the question as given.

A paid-for accountant would probably be happy to dig into the detail to see if you have problems or not. I doubt you will find anyone willing to do an in-depth analysis of all potential issues for free.

That is even without addressing the more urgent question that I and others have raised. Why does the asset company have a VAT return at all and, assuming it has actually charged VAT, what happened to that money that means it cannot pay it's own liability?

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Replying to stepurhan:
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By Louisa19
06th Mar 2021 18:18

“what happened to that money that means it cannot pay it's own liability?”

The money comes from Company A’s bank account anyway but it’s usually transferred to Company B’s account and then Company B makes the payment straight from their bank account rather than Company A paying for both, which has been doing on this occasion. They were both paid separately using their own VAT numbers but by company A’s account.

We control Company A’s and B’s bank account. They are both registered at the same address and have the same director it’s just that it was stupidly paid from Company A’s account.

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Replying to Louisa19:
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By Louisa19
06th Mar 2021 18:19

All the money that is in Company B’s bank account comes from Company A’s.

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Replying to Louisa19:
RLI
By lionofludesch
06th Mar 2021 18:26

Quote:

“what happened to that money that means it cannot pay it's own liability?”

The money comes from Company A’s bank account anyway but it’s usually transferred to Company B’s account and then Company B makes the payment straight from their bank account rather than Company A paying for both, which has been doing on this occasion. They were both paid separately using their own VAT numbers but by company A’s account.

We control Company A’s and B’s bank account. They are both registered at the same address and have the same director it’s just that it was stupidly paid from Company A’s account.

OK - let's make this straightforward.

Company B has a VAT liability.

So Company B must have some sales.

So where's the money from those sales ?

Is the problem that Company A doesn't pay its debts ?

Or is it something else ?

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Replying to lionofludesch:
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By Louisa19
06th Mar 2021 18:50

Its quite complicated and I don’t seem to understand it at all and why they do this but basically Company B raises a few invoices to Company A. We put the invoices on our ledger as a journal but we have never paid for the invoices, ever.

Company A and B both have a VAT liability to pay but rather than transferring the money from Company A into Company B and making a straight payment to HMRC, both liabilities were paid from company A’s bank account.

If it wasn’t for company A, company B wouldn’t have any money in the account as money is transferred, always.

I thought it was easier to make a payment from Company A for both lots rather than transferring and doing a payment that way but now I’m thinking how is company B going to record the VAT being paid on their ledger if nothing has been put in or paid out.

I have put the liability for company b on company A’s account as it came out of our bank and cr the bank dr Company B on our system.

I’m sure I’ve done this before and the accountants has corrected it but now we have a FD and I’m worrying it’s going to be a problem.

I didn’t ask anybody first as Im sure I have done it before otherwise I would’ve consulted them but now I’m wondering how it’s all going to be accounted for.

I didn’t have time to check if both have been paid before out of Company A’s account, hence the uncertainty.

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Replying to Louisa19:
RLI
By lionofludesch
06th Mar 2021 19:15

Quote:

Its quite complicated and I don’t seem to understand it at all and why they do this but basically Company B raises a few invoices to Company A. We put the invoices on our ledger as a journal but we have never paid for the invoices, ever.

If that's how Company A deals with its debts, I don't know why you have a problem with using journals to account for the VAT payment.

But it'd be a lot easier if each company would pay its own bills.

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Replying to lionofludesch:
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By Louisa19
06th Mar 2021 19:41

Company A isn’t the issue. We paid Company A’s VAT through their bank account but we also paid Company B’s through Company A’s account too which is what I’m concerned about as i don’t know how it’ll be accounted for in their accounts as it hasn’t been paid through Company B’s bank so there’s no proof of any payment.

I know there’s no concern where HMRC is involved as they’ve received the payment but it’s just how it’ll be recorded.

We have access to Company B’s accounts as we do both set of accounts.

Next time I’ll just transfer it through Company B’s account and save all this hassle.

Would you have to do a inter company loan? How would it work?

Thanks for replying.

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Replying to Louisa19:
RLI
By lionofludesch
06th Mar 2021 20:03

Quote:

Company A isn’t the issue. We paid Company A’s VAT through their bank account but we also paid Company B’s through Company A’s account too which is what I’m concerned about as i don’t know how it’ll be accounted for in their accounts......

How is Company A not an issue when its paying other companies' VAT debts?

Both companies have issues. They're lending money to each other. Because they're not paying it to each other, it's hard to keep a track.

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Replying to Louisa19:
Stepurhan
By stepurhan
06th Mar 2021 20:47

Quote:

If it wasn’t for company A, company B wouldn’t have any money in the account as money is transferred, always.


This seems to be the key issue.

However, you appear to be seeing it as company A helping out company B by transferring money across.

If I have understood correctly, company A is not simply helping by doing this. Company B needs the money transferred becuase company A is not paying its bills.

That is not a good situation. It sounds like the common director is treating the two companies as one (which is why he thinks company A doesn't need to pay company B's invoices). Paying a VAT bill is probably the least of your worries if that is the case.

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Replying to Louisa19:
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By Paul Crowley
07th Mar 2021 14:30

Someone needs to say it
MAKE CERTAIN YOU ARE NOT USING THE CASH BASIS FOR VAT

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Replying to Louisa19:
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By Paul Crowley
07th Mar 2021 14:25

good initials are better

EG
A assets co
T trading co

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Replying to Cheshire:
RLI
By lionofludesch
06th Mar 2021 07:17

Quote:

How are the actual companies related?

They're sisters, Cheshire.

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By Cheshire
05th Mar 2021 17:56

There was a 'hint' in my first response.

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Replying to Cheshire:
Stepurhan
By stepurhan
05th Mar 2021 18:19

It was a very subtle hint. A veritable hintlet. :-)

More than enough to answer the question given though.

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Routemaster image
By tom123
06th Mar 2021 09:33

Would a VAT group make sense in this scenario?

Or, as is common on Aweb, are we talking about 'entrepreneurs' who collect companies like stickers :)

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By Paul Crowley
07th Mar 2021 14:32

I am lost
But if asset company ends up owing money to trading company
And asset company exists just in case trading company goes bust
then asset company still needs to pay trading company any intercompany loan.

Asset company still needs to make business supplies to be registered

BUT that was not the question
Let FD decide what should be happening
Let the accountants fix the double entry

As an accountant I prefer to fix the errors rather than cope with lots of unexplained random journals

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