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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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.
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.
'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.
What problems could it cause in the future?
I refer you to my answer raising that point.
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?
“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 ?
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.
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.
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.
It was a very subtle hint. A veritable hintlet. :-)
More than enough to answer the question given though.
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 :)
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