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bigduckontax
bigduckontax, Accountant
Category: Tax
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I have 2 business partners. We all 33.33% shareholding in a

Customer Question

I have 2 business partners. We all 33.33% shareholding in a vat registered company that sells motor vehicles and parts etc. We each individually have our own limited company that are not VAT registered. We are independent from each other in terms of revenue streams. If I sell a vehicle the profit is invoiced to my individual company and I cover the costs of sale and do not claim the vat. The "holding" company invoices us once a month for a management fee to cover the overheads of the company.My question is: If I am invoicing out the profit to my individual company so at the end of the financial year the "holding" company has not made a profit, am I or either of the other partners liable for an vat on the profit through the "holding" company?
Submitted: 17 days ago.
Category: Tax
Expert:  bigduckontax replied 17 days ago.

Hello, I am Keith one of the experts on Just Answer, and pleased to be able to help you with your question.

Only if the individual company breaches the VAT Turnover Threshold. If that is the case it would have to register and charge VAT on its invoices.

I do hope that I have resolved your conundrum for you.

Customer: replied 17 days ago.
Hi Keith,It is the main company I am referring to. Let me give you an example:Company A (the holding company) buys a car at £20k and sells for £22k (we do it this way as this company is registered for compliance with various funders to fund the vehicles on behalf of the end purchaser). The £2k is invoiced out to my individual company that is not registered for vat as the turnover does not cross the threshold. I use the £2k to cover the cost of the sale and anything left is my individual profit.My question is: Is company A liable for any vat on the £2k that has been invoiced out?Thanks.
Expert:  bigduckontax replied 17 days ago.

Company A's invoice for 2K would have to have VAT at the standard rate added [400 quid].

Customer: replied 17 days ago.
I don't follow. The invoice is coming from a non vat registered company so it is just a straight £2k invoice.
Essentially company A is just a vehicle for the 3 of us to have access to a funding panel in the event that the customer wants to finance the vehicle. Company A makes no profit, but does turn over the actual funds.
Customer: replied 17 days ago.
we pay corporation tax on our profit and all other expenses out of our individual companies.
Expert:  bigduckontax replied 17 days ago.

You said the holding company was issuing the invoice. If your company is issuing the invoice then, of course, there would be no VAT added as it is not registered.

Customer: replied 17 days ago.
Understood. What about the initial purchase and sale through the holding company? Holding company buys and sells to an individual, profit is invoiced out to me. Is the holding company liable for the vat on an profit if it has been invoiced out to me?
Expert:  bigduckontax replied 17 days ago.

No, you are liable for it unless you have an agreement that the holding company will cover the VAT itself. This would substantially reduce the holding company's income.

Customer: replied 17 days ago.
Sorry Keith im not clued up with this as you can probably tell.So am I right in thinking that as I am not registered and that as the holding company has invoiced all the profit out, the holding company does not a vat liability on the profit?
Expert:  bigduckontax replied 17 days ago.

The holding company must account for VAT output tax on everything it invoices out. Normally the recipient of the invoice would reclaim this tax as an input. If that is not feasible then the holding company can either demand the VAT from the other party or absorb it itself thus reducing its own income.

Customer: replied 17 days ago.
in short, the invoice from my company (the non vat registered one) cannot come off the profit as a cost of sale for the holding company, leaving it a nil balance in terms of profit.
Expert:  bigduckontax replied 17 days ago.

It will for the holding company.

Customer: replied 17 days ago.
Is that a yes or a no? I don’t understand.
Expert:  bigduckontax replied 17 days ago.

The invoice from you company to the holding company will reduce the profit level in the latter and inflate it in the former.

Customer: replied 17 days ago.
Can you please just answer the last question with a yes or no. Will the company that purchases the vehicle and then sells it be liable for any vat if the profit is invoices out to my company. I literally just want a simple answer.
Expert:  bigduckontax replied 17 days ago.

No, your company is not registered for VAT.

Customer: replied 17 days ago.
I’m talking about the holding company that is.
Expert:  bigduckontax replied 17 days ago.

The holding company, being registered for VAT must charge VAT on the invoices it issues and may claim any VAT suffered from purchasing vehicles as input tax.

Customer: replied 17 days ago.
I am talking about the vat on the profit. The vehicles are sold to private individuals and are not vat qualifying, I am literally just talking about the VAT on the profit from the sale if it is invoiced out. If there is no profit left after the invoice is paid, is the holding company liable for any vat?
Expert:  bigduckontax replied 17 days ago.

It still does not matter to whom a vehicle is sold, VAT must be charged or accounted for. If you sell to a registered person for say 100 quid then 20 quid VAT would be added to the invoice. If sold to a non registered person the bill would be 83-33 quid with 16-67 added for VAT making a total bill of 100 quid.