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VAT Registered Ltd Co invoice Director?

Should a limited company issue sales invoices to a Director who is using company services?

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Good morning all,

I'm doing the bookkeeping for a new VAT-registered limited company that rents out offices. One of the directors is using one of their offices. My instinct is that the company should be issuing sales invoices to the director and reporting the output VAT to HMRC, but I'm not 100% sure. Can I just check if this is correct? If not, what else should I be considering?

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By bernard michael
29th Jul 2019 09:37

Also perhaps a benefit in kind reportable via P11D depending on how the company/director want to treat the rent

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By johngroganjga
29th Jul 2019 09:45

You are approaching this back to front. The company should only be issuing invoices for rent if the agreement between the director and the company is that rent is due.

As Bernard says, there may be tax consequences for the director if they are enjoying rent free occupation of company property for personal purposes, but they will be for the company's tax adviser, not its bookkeeper, to sort out.

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By LostinSuspense
29th Jul 2019 09:55

I assume the Director is undertaking work / duties independent from the work they carry out as a Director?

If they are undertaking work on behalf of the business exclusively then it is a bit cheeky. The issue here comes from determining a fair market value rent for the office for it not to be determined as a benefit in kind.

If rent is being charged, then you need an explanation (recorded down) explaining how you have come to the figure of rent you are charging, acknowledging the proportion of work they do as a Director for the company, not just a casual, 'we agreed £50/week'.

Whilst not full proof, if you can show that time, effort and consideration went into coming up with the figure for rent, if HMRC were to undertake an inspection, they would find it harder to argue a benefit existed to the Director than just a verbal gentleman's arrangement.

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By Kentnix
29th Jul 2019 10:07

Thanks for those answers, yes I should say that the Director is using the office for their own unrelated sole trader business.
I want to make sure that the VAT position is right as I will be filing the VAT return as well.
So, is it really up the company to decide how it records this transaction, or does HMRC have an opinion on whether they should be getting output VAT on something like this?
I have looked at the HMRC guidance on VAT and it says that there is no output VAT due on goods given to an employee for no consideration (except fuel). Would you say this applies in this case?

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Replying to Kentnix:
By johngroganjga
29th Jul 2019 11:42

If there is no rent there is no VAT. It is none of HMRC's business to get involved in the decision as to whether the director is to pay rent to the company, just to collect tax from the company if they do, and from the director if they don't.

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Replying to johngroganjga:
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By spidersong
29th Jul 2019 12:24

They might not be able to involve themselves in whether the director pays for the office, but they will have an opinion as to whether the company can recover all the VAT they incur on running the offices (potentially including the original purchase) they're renting out if they're not actually using all of them for their business purposes.

They may also have an opinion on whether the option to tax will apply to any rent they do take in from the director.

Those opinions may be backed up by VAT law (or maybe not depends on how good HMRC's opinions are!) and might have some considerable impact on the company.

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By bernard michael
29th Jul 2019 10:15

Go back to my earlier response and subsequent wise utterances of the brethren

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By pauld
29th Jul 2019 10:26

Would it be beneficial for the director to pay rent as this would be a deduction against their sole trade and perhaps 29% tax and NI relief. Is sole trade vat registered so that can claim back vat on rent? Company will only pay 19% tax on income.

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By fawltybasil2575
29th Jul 2019 12:29

@ Kentnix (OP).

Whilst your enquiry is laudable, may I (in intending no offence) suggest that you may perhaps be "exceeding your brief", as the book-keeper, in seeking to resolve matters which are probably more complex than you think; with the resultant danger of your being blamed if one or more of the directors later consider (rightly or wrongly) that you have advised them incorrectly.

Firstly, you refer to there being “directors” (plural): I have to say that (especially if, but not solely if) the directors are unconnected, then a more important matter than the taxation considerations is establishing the appropriate figure which the “directors” (on behalf of the company) consider should be charged to the one director who is renting the one office.

Secondly, it appears implicit in your question that VAT should definitely be applied. However, whether VAT should or should not be added to any or all of the amount payable depends upon (i) what is covered by that amount (ie “Rent only” or “Rent plus other items” – sometimes the “other items” are required to be treated as rent even if they are related costs); and (ii) whether there is an Option to Tax in place.

I would, in your shoes, be simply asking the question (of the directors) as to what amounts they require you to invoice to the director, and whether VAT should be added to those invoices (by all means flagging up to them the need for them to determine whether VAT should be added to any or all of the amounts charged to the director).

I would recommend your also advising your client company to obtain the advices of their accountant.

Basil.

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By Kentnix
29th Jul 2019 12:45

You see that's why I love this forum! Thank you so much for all your responses.

Thanks Basil - I agree it's beyond my brief to advise the client, but I do like to understand what's going on and consider all the implications just coz I'm curious and love accounts (sad isn't it!)

I've emailed the directors' with a simple question of how they'd like me to treat this. Their accountant is on holiday, but I've recommended they discuss the options with him.

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Replying to Kentnix:
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By paul.benny
29th Jul 2019 16:10

Credit to you for engaging with the responses and even more so for wanting to understand more than the basics of your job.

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