Accountancy type question - Can one ltd company send another ltd company money, with no invoice?

VincentHanna · 23 Apr 2020 at 14:24

Hoping somebody can help with this.

I have a ltd company (VAT registered) and we rent an office from a landlord.

We share the office space with a different ltd company (also VAT registered) and split it 50/50, but the rental contract is all in my company name, so I pay the rent and then invoice the other company every month for 50% of that Rent.

They've been with us for 5 years and always paid on time.

Because my company are the tenants, the business rates are also in my company name, and we get small business rate relief.

Due to the Covid-19 crisis, we were eligible to claim a grant of £10,000, which I want to split with the other company - But I can't get my head around the best way of doing it fairly and evenly.

Firstly - The £10,000 grant will be treated as profit, so as long as we make money this year (who knows) then I will be eligable for 19% corporation tax on it (£1900).

If they invoice me for £5000 then I know that will come off my profits, but I'll also have to pay them £6000 inc VAT, so we will only have £4000 cash to help us through this.

I assume I can't just make a BACS payment of £5000 to another company with no paper trail?

Any thoughts on the best way to do this?

Kemik · 23 Apr 2020 at 14:34

1. Speak to your accountant.
2. Give them a credit note (refund) for the amount on their rent.

Freddie1980 · 23 Apr 2020 at 14:36

Just pay them the £5000 and treat your half as income there is no need to issue an invoice or worry about paper trails. All your doing in effect is reducing their allocations for rent and rates (in this cast rates).

Accounting treatment would be

Bank/Cash
Debit £10k (from government)
Credit £5K (payment to subtenants)

P&L Rent & Rates
Credit £10K
Debit £5k

Of course the alternative is just not charge you subtenants for the rates until they have had the benefit of £5,000.

Jambo · 23 Apr 2020 at 14:37

Yeah check with your accountant or the VAT office. It might be outside the scope of VAT because it's a grant.

VincentHanna · 23 Apr 2020 at 14:37

Kemik said:
1. Speak to your accountant.

My accountant is ruthless - his words were "Don't pay them anything, if they go bankrupt and you can't get another tenant in, that covers you for 6 months"

It's up to me whether to follow that advice, and if the shoe was on the other foot I wouldn't want somebody to do that to me so I'd rather just pay it.

Semple · 23 Apr 2020 at 14:40

VincentHanna said:
My accountant is ruthless - his words were "Don't pay them anything, if they go bankrupt and you can't get another tenant in, that covers you for 6 months"

Whilst it might appear ruthless, his priority is only you/your business. But it's nice to see you doing a decent thing.

VincentHanna · 23 Apr 2020 at 14:42

I understand that.

But I don't want to be a complete **** and my business is doing ok for now.

This other company is in recruitment though and I do worry if they will be around in 6 months what with the current situation.

Freddie1980 · 23 Apr 2020 at 14:42

VincentHanna said:
My accountant is ruthless - his words were "Don't pay them anything, if they go bankrupt and you can't get another tenant in, that covers you for 6 months"

It's up to me whether to follow that advice, and if the shoe was on the other foot I wouldn't want somebody to do that to me so I'd rather just pay it.

Just pay them the £5k and record it as an expense against your P&L for rates and the £10k from the government grant as income again recorded against rates.

VincentHanna · 23 Apr 2020 at 14:44

Freddie1980 said:
Just pay them the £5k and record it as an expense against your P&L for rates and the £10k from the government grant as income again recorded against rates.

We don't pay any rates though, the small business rate relief means we pay £0.

tom_e · 23 Apr 2020 at 14:50

VincentHanna said:
My accountant is ruthless - his words were "Don't pay them anything, if they go bankrupt and you can't get another tenant in, that covers you for 6 months"

It's up to me whether to follow that advice, and if the shoe was on the other foot I wouldn't want somebody to do that to me so I'd rather just pay it.

He works for you, tell him you you appreciate his advice but you want to know how to go about doing it your way.

Kemik · 23 Apr 2020 at 14:57

VincentHanna said:
My accountant is ruthless - his words were "Don't pay them anything, if they go bankrupt and you can't get another tenant in, that covers you for 6 months"

It's up to me whether to follow that advice, and if the shoe was on the other foot I wouldn't want somebody to do that to me so I'd rather just pay it.

I was more thinking about the mechanism rather than should you.

Do you charge VAT on your rental to them? Are you charged VAT on your rental?

Be wary of forum advice - some on here has already been wrong or doesn't consider everything, such as VAT implications.

VincentHanna · 23 Apr 2020 at 15:00

I charge VAT on my rental invoices to them.

My rent doesn't include VAT.

Kemik · 23 Apr 2020 at 15:53

VincentHanna said:
I charge VAT on my rental invoices to them.

My rent doesn't include VAT.

What is your main business? Does your accountant know you charge them VAT? I would get all of that checked with them. VAT isn't my specialist, but I thought you could only charge VAT if the property owner had opted to tax.

VincentHanna · 23 Apr 2020 at 17:07

It's not like I'm making money from it, the VAT goes to HMRC.

According to my accountant they can just raise an invoice with no VAT on it...problem solved

Kemik · 23 Apr 2020 at 17:40

VincentHanna said:
It's not like I'm making money from it, the VAT goes to HMRC

That’s not really the point. It’s to do with complying with VAT rules.

SpeedFreak · 23 Apr 2020 at 18:04

Just call it rent relief on the normal rent recharge invoice over 3 or 4 months.

Pudney · 23 Apr 2020 at 18:19

VincentHanna said:
It's not like I'm making money from it, the VAT goes to HMRC.

According to my accountant they can just raise an invoice with no VAT on it...problem solved

Kemik said:
That’s not really the point. It’s to do with complying with VAT rules.

Potentially OP is making money from charging VAT. The supply of land is typically exempt from VAT which raises the question of whether OP is partially exempt and is thereby unable to recover some of his input VAT on supplies made to him. VAT isn't my area either though.

Just remember, VAT isn't always a zero sum game between businesses.

Kemik · 23 Apr 2020 at 22:15

Pudney said:
VAT isn't my area either though.

I hate indirect taxes so much.

VincentHanna · 23 Apr 2020 at 22:21

Pudney said:
Potentially OP is making money from charging VAT. The supply of land is typically exempt from VAT which raises the question of whether OP is partially exempt and is thereby unable to recover some of his input VAT on supplies made to him. VAT isn't my area either though.

We're not on the flat-rate scheme, we use standard accounting.

Pudney · 23 Apr 2020 at 22:39

VincentHanna said:
We're not on the flat-rate scheme, we use standard accounting.

Yes, so you need to be aware of Partial Exemption.