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VAT on invoices issued to another business

Client with 2 businesses and VAT invoices

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Client owns company A and has recently set up a sole trader B.

Sole trader B has zero credit history so none of the builder's merchants will allow them credit. Company A has a trade account so the client has used this account to buy quite a lot of materials for the start up. All the VAT invoices are in A's name but all the payments are coming out of B's new bank account.

Would it be acceptable for A to re-invoice B for all the materials purchased and contra the sales/purchases in their books?

 

 

 

 

 

 

 

 

Replies (6)

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By paul.benny
25th Apr 2019 11:53

Yes and no.

You could do it but it creates considerable extra work.
I'm really not sure why this would make any sense if the client wholly owns his company. Could the arrangement have some less than honest intent - for example allowing the company to go into administration leaving suppliers unpaid and the sole trader having the benefit of the goods?

If you think that might be the case, you might want to consider how this stands with the ethical standards of your professional body.

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By Learningvfast
25th Apr 2019 12:17

No - the company is very solvent so that isn't an issue. The materials themselves are paid at the till.

It is simply the client starting a different venture under B without pausing to think about the VAT implications.

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By Duggimon
25th Apr 2019 12:37

If the materials are paid for at the till then why is a credit account needed?

How did your client's company manage to buy materials from these suppliers when it started and why can't the sole trade do the same?

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RLI
By lionofludesch
25th Apr 2019 11:56

Re-invoice, yes.

Contra sales and purchases - that's a more iffy issue. It's probably OK if these materials were never intended for use in Company A's business and the exact same amount is charged out.

If Company A makes a profit, no, you can't contra the invoices. It's purchases and sales.

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By Learningvfast
25th Apr 2019 12:09

It would be a 100% recharge with no profit. The materials are purely for the new venture B.

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By paul.benny
25th Apr 2019 13:07

Given that it's legit, it still creates a load of extra work (for someone) to reinvoice from A to B and there is plenty of risk of error or confusion. Don't forget that the transaction will be subject to VAT and possibly within the recently-extended reverse charge rules.

All this extra work adds no value - so if you are doing it, your client isn't going to be keen to pay for it.

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