What expenses can be recharged to other group co’s

Which costs that are incurred by a non-revenue generating co can be recharged?

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The business I work for is made up of several limited companies relating to their type of business.  One of these companies is an admin company which has several admin staff, an office, office equipment and sometimes makes various purchases on behalf of the other group companies.  This admin company is non-revenue generating.

My question is, what costs can be recharged from the admin company?

At the moment the admin staff wages, rent and insurances are recharged to other group companies (proportioned by revenue)

There are other costs remaining in the admin company though, such as stationary, bank charges, office decor, IT fees etc., which are not currently recharged out on the same basis.

This leads to the admin company frequently running out of cash, even though a management fee is added to the items that are recharged.

 Can anyone advise or confirm if the other costs listed above should also be recharged?  This would effectively leave no costs at all in the admin company but a small income from management fees?

Thank you in advance.

Replies (9)

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By Tax Dragon
20th May 2020 06:37

Sure, why not?

Thanks (1)
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By paul.benny
20th May 2020 07:13

You can recharge what you like.

I think you mean what would be allowable for tax in the subsids. In principle, any expenses that would be allowable if incurred directly are likely to be allowable if incurred by adminco and recharged. It would be prudent to have a proper services agreement between adminco and subsids.

You might also want to discuss with your accountants/auditors.

Thanks (1)
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By frankfx
20th May 2020 09:21

In all likelihood 100% can be recharged.
But bigger question for the finance director... why is Admin co. Short of cash.
Admin costs tend to be highly predicable, most spikes should be planned for. For every ones benefit.
Perhaps head office take the view it will be all right on the night.
It seems some simple modifications to monthly process would remedy your concerns.
Covid 19 is compelling all budgets costs and historic procedures to be reviewed, perhaps Admin co and interaction with operating companies is primed for a timely review.
Ultimately you should not be losing sleep over this, a simple solution should restore sanity.

Thanks (1)
Replying to frankfx:
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By Roxy81
20th May 2020 09:52

Thanks. The reason the Admin co runs short of cash is that it doesn’t generate any income.
So a solution could be to a) recharge ALL costs incurred and also b) the costs which are predictable such as rent, insurances etc could be recharged in advance? Say a year in advance perhaps... would this be reasonable?

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By frankfx
20th May 2020 11:04

It does generate income.
A recovery of costs, shared by the operating companies.
That is it's income.
Not the same as thinking that it is a profit centre, with key performance indicators that drive it as a business.
If it did apply that type of thinking it may not have cash worries.
You need, as stated, a clear monthly cash inflow from the other companies.
Not feast and famine.
Reality, the operating companies have to pay.

It's admin. Company responsibility to communicate that cash need to the Companies, so they in turn can manage their own cash flow.

To extract some cash a year in advance, so it can sit idle in admin. Co. Bank account?
Really?

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Replying to frankfx:
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By Roxy81
20th May 2020 11:31

“It does generate income.
A recovery of costs, shared by the operating companies.
That is it's income.”

The costs come in to the admin Co then get booked back out - the expense and recharge both get booked to the same overhead account.. Nil effect and no income recorded except the small management fee on each recharge.

Yes a year in advance is excessive, I agree. The company has never had a clear cash flow process, which I’m trying to implement.

Thank you

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Replying to Roxy81:
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By Bobbo
20th May 2020 14:21

Roxy81 wrote:

The costs come in to the admin Co then get booked back out - the expense and recharge both get booked to the same overhead account.. Nil effect and no income recorded except the small management fee on each recharge.

Not convinced this is the correct treatment based on what you have said so far.

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Replying to Bobbo:
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By Roxy81
20th May 2020 14:53

“Not convinced this is the correct treatment based on what you have said so far.”

Could you elaborate.. what should be the correct treatment? Thank you

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Replying to Roxy81:
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By paul.benny
20th May 2020 16:10

The trade of Adminco is providing admin services - therefore the income from other group members is turnover. In those companies, the amount is expense

For the consolidated accounts, the turnover in Adminco will be eliminated and the costs recharged by adminco will also be eliminated. This prevents double-counting of both income and expense.

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