Transfer of expenses via capital account

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Dear AW community, 

Happy New Year.

I am hoping that you will be able to asssit me as it feels like I am going round in circles. 

So, I have a new client who is a VAT registered sole trader. They have a trade (growing and selling trees) and own commercial and residential land and buildings that they let. I am comfortable with the trading and residential property income; my problem is the commercial property.

The commercial property is let to a non-VAT registered partnership that is run by the sole trader's wife and a very close family friend. The sole trader charges the partnership a notional annual rent and completes repairs and mainteance throughout the year as well as paying various bills on their behalf e.g. utilities. 

What I am hoping to do is to add the sole trader as a partner to the partnership and then transfer via the capital accounts, in both his sole trade as drawings and in the partnership as capital introduced, the running and maintenance costs relating to the commercial property (I also need to do the reverse for costs paid by the partnership for the residential property). The sole trader would then still have the property income, which I understand as a partner they can charge, and they could also take a share of the partnershhip profits to reflect the ongoing maintenance work that they do. 

I have considered whether the maintenance services that the sole trader provides to the partnership amount to a trade however as they are not provided to anyone else and do not meet any of the badges of trade I do not think unfortunately that this is an option. 

There are additional issues in that the previous years accounts were incorrect, there was no balance sheet, VAT has been charged on the rent with no OTT being in place and VAT has been recovered on the maintenance materials. I am in the process of trying to sort these out and I appreciate that if I move the costs from the sole trader to the partnerhship the VAT previously recovered would need to be repaid (this is not a significant amount). 

It is all very messy with income and costs being in the wrong place and I would like to tidy it up and also have the two sets of accounts reflect the reality of how they operate.  Is the above possible or is there a better way?

Thanks in advance

 

 

 

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