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bigduckontax, Accountant
Category: Tax
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This is regarding Company invoicing and tax Background

Customer Question

This is regarding Company invoicing and tax
Background –
I have a company in both UK and India, in UK company myself and my wife are directors and Indian company my brother is Director since beginning and I recently joined as additional Director
My company Basically provides Software and consulting services to customers in UK. I have a customer in UK for whom I m providing software services since 18+months
The actual work is being done from India and I have got few staff in India working on the projects.
In terms of billing, my Customer is paying monthly Invoices to my UK company bank account as advised in the Invoice and i m paying all the UK taxes ( VAT, Corporate tax) based the income I m getting,
My Indian company raise invoices to my UK company on monthly basis which will get paid as per Invoice
So far its good. But I started getting some doubts when I recently spoke my Customer here in UK about Contract, he mentioned that the Contract as per their records is with my Indian Company.
Now the queries are,
- Who should be raising invoices really, should it be my Indian Company to UK client or can I also raise the Invoice from my UK company?
- If its should done by Indian company not the UK company then how do I rectify the accounts?
- What is the problem if Invoice are paid into UK company account?
Submitted: 2 years ago.
Category: Tax
Customer: replied 2 years ago.
Just correction: My Indian company raise invoices to my UK company on monthly basis which pay to my Indian company as per Invoice
Expert:  bigduckontax replied 2 years ago.
Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question. On the face of it it is perfectly proper for the Indian company to invoice for these services. You cannot raise invoices against the customer from the UK company also. The cash flow can be adjusted by the Indian company invoicing the UK company, and this already seems to be being done, for moneys paid on its behalf, simple, as the meerkat in the TV advertisement would say. The UK company is merely acting as a banker so no VAT consequences arise. I do hope that I have been able to set your mind at rest on this matter.
Customer: replied 2 years ago.
Hi KeithThanks for the response, but i dont fully understand it.First of all do you see any problem so far in terms of UK company raising invoices for the services done by Indian Company?Does HMRC raise any concerns ( i think no as i m paying taxes for all the inflow but please confirm)I m actually paying two taxes 1 is in UK for the funds i m receiving from customer 2. in India for the funds they are receiving from UK companyIf you think its wrong then how do i correct the transactions happened so far? Do i need to Inform HMRC about all these and ask for an advise?Thanks
Customer: replied 2 years ago.
Also, going forward as advised if i ask Indian company to raise the Invoice then can they also claim VAT or Service Tax?
Expert:  bigduckontax replied 2 years ago.
None whatsoever, it goes on all the time. It is a zero rated supply for VAT, an export. You charge VAT, but at 0%. Where the UK company is merely acting as a banker such transactions are outside the scope of VAT and are merely posted to a nominal account in the name of the Indian organization. HMRC will not be concerned as any net profit will be declared for Corporation Tax (CT). The Double Taxation Treaty between the UK and India is drafted to ensure that income flows are not taxed in both jurisdictions. Any tax paid in one country being allowed as a tax credit against the liability in the other. You do this at the end of every year when you complete your on line CT Return.
Customer: replied 2 years ago.
Thanks again Keithwhen you say 0% VAT, but i have been charging 20% VAT to my customer since 18 months and paying HMRC 13.5% ( there is a little benefit for me) - Do you think this is wrong?Overall you say there is nothing wrong in what i m doing from HMRC point of view and i can continue to do however i m doing it so far?Thanks in advance
Expert:  bigduckontax replied 2 years ago.
Most certainly it is wrong; if you have been invoicing an Indian customer or indeed any customer out with the EU for VAT then, as I told you, this a zero rated supply and you should be charging VAT, but at a rate of 0%.
Fortunately recovering the tax is relatively simple, you merely under declare output tax due in the quarterly return until the moneys are recovered and issue a credit note to your customer.
Customer: replied 2 years ago.
I dont know if i m explaining you case clearly,I thought UK company is raising Invoice with the VAT for the work that is being done in India was okay but if you think its wrong then i have already collected VAT for 18 months and paid VAT to HMRCSo you are saying recover VAT from HMRC that i have paid so far and then return the money to Customer?I m paying corporation tax for the net profits which is Invoice received - Invoice paid - any other expenses so do you think i dont need to pay corporation tax if i m acting as a mediator between Indian company and customer?i really confused of all these, hope you understand my queries clearlyI thought whatever happening so far is right which is,
My UK company raising Invoices (which includes VAT) for the work being done from India
Then Indian company raise Invoice for UK company and then UK company pays to Indian company
end of the year UK company pays corporation tax for the NET profits
I got the doubt only when my customer said recently that in their records it says their contract is with Indian company.can you please clearly explain me the steps that need to do to correct it if there is anything wrong so far? or if you think leave as is whatever happened so far and from now on do it correctly?
Expert:  bigduckontax replied 2 years ago.
Yes, assuming that you have other sales subject to standard rated VAT this can be done through the quarterly return.
The CT position depends on the level of profit made less expenses. All appropriate expenses are allowable.
However your last follow up question has thrown a spanner in the works. If your UK company is invoicing an EU organisation for work undertaken then the application of VAT is correct even if you sub contract it to India. If your company is merely operating in a banking capacity then no invoices should be generated at all. If, as you suggest, the contract says that it is with an Indian company, then that organisation should be invoicing direct from India and your company only operating in a banking capacity.
Customer: replied 2 years ago.
Ok, Just had a call with my client and he says no issues for him to give the contract on UK company therefore i assume so far whatever i have done is absolutely correct. please confirmThanks
Expert:  bigduckontax replied 2 years ago.
Perfect, then your accounting treatment will have been correct.
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