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bigduckontax, Accountant
Category: Tax
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REF: VAT , we own two small limited companies based in the

Customer Question

Hi, we own two small limited companies based in the same building who 4 years ago started trading with each other in two ways. Company A is long established and does all the purchasing and then invoices company B for those goods and also for a percentage of the rent etc. Company B invoices company A for project management costs and goods relevant to those projects. Some bank transfers are made from company to company for those invoices some invoices are naturally contra'd
Company A is on cash Accounting, Company B is'nt so sometimes there as been vat due back to us. We have a vat inspection due on Company A and I wanted to know which approach to take, everything is documented but I am worried that hmrc may view it as being unacceptable.
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello Chris, I am Keith, one of the experts on Just Answer, and happy to help you with your question.
Providing that you have VAT invoices to support the trading, particularly the inter company activities, and other proper records you should have no problem with a VAT inspection. I am aware of two companies who have been doing this sort of thing for years and HMRC have never batted an eyelid.
I recall many years ago a VAT inspection where after 10 minutes looking at the records and vouchers the Inspector remarked that he was wasting his time here and departed with a gleam in his eye for Mr Patel's corner shop!
I do hope I have helped set your mind at rest on this matter.
Customer: replied 2 years ago.

My biggest worry is as one company is on cash accounting and the other one is'nt so over the 4 years the vat have paid to us in reclaims around £40k, What do I need to do to make sure that everything stands up to scrutiny, I know over that period its probably nothing unusual to reclaim that sort of money but if they come in and say it as to be paid back it would be impossible.

Expert:  bigduckontax replied 2 years ago.
Providing there are vouchers for all trading and inter company transfers you should have no problem. The companies which I mentioned are on cash accounting, but records are scrupulously maintained. providing that you have vouchers to support your VAT accounting you should have no problem.
I recall one VAt inspector who was warned that the organisation acted as a banker for others. He then proceeded to add up all incoming moneys 'So I can derive the VAT payable,' left and we received a bill for 2.5K for unpaid VAT. The one page letter appeal had this cancelled in a matter of days!
Customer: replied 2 years ago.

We always generate an invoice for the ledger, the bank statements show intercompany transfers, I'm a bit sceptical about the contra's though, i.e in retrospect I am wondering now is it right to include these invoices as inputs/outputs then contra them months later

What we have done is obviously documented fully and genuine but it would appear that we could have done this on a massive scale, am I being a bit nieve or is the vat system that easy to beat.

Expert:  bigduckontax replied 2 years ago.
Providing that all transaction, particularly inter company ones in this case are properly supported and vouched you should have no problem.