Sale of asset between connected companies

JodieR Registered Posts: 1,002
My client, Co A, has 2 directors and has been trading for about 2 years, during which time they have developed a website which is central to the whole business.
They want to now set up another Company (Co B) as a side-line project with another man (Mr X) who's going to use the code they've written to create a similar website but targeted at a different customer base.

Co A is VAT registered and is using the flat rate scheme. Co B is ideally not going to be registered until it reaches the threshold.

The code has been valued at £30k and Mr X has £15k cash to invest in Co B, but they're not happy about Co A raising an invoice for the code to Co B as I am pretty sure Co A will have to include VAT on it, which Co B may not be able to reclaim for years.
Could this be classed as a transfer of a going concern for VAT purposes and therefore not have to account for VAT?
If not, does anyone know if Co A will have to pay over the full 17.5% VAT or just 10% (ie the flat rate %) - if it is just the 10% then when Co B does come to register will it be able to reclaim the full 17.5%? I'm sure there'll be some anti-avoidance measures in place to prevent this but I can't see how else it works.

Hope someone can help me make sense of this.



  • sdv
    sdv Registered Posts: 585
    If companyA and MrX are going in a partnership, and forming companyB, then companyA does not need to invoice companyB for the transfer of the CODE. The transfer of the coide is the investment in the companyB

    The code has a value that will be debited as an asset and credited the share capital account. Mr X will invest 15K which will be debited in the bank and credited in the share capital account.

    An investment has been made in companyB. Debit investments in companyB with 30K and credit Investment reserve a/c (part of sharholder funds) This may attract some sort of tax, I don't know, need to talk to a tax specialist.

    The transfer of Code not a sale, but an exchange of assets. Code for Investments in companyB.

    The above solutions will not only solve your VAT probem for both companies but also sort out your opening TB entries for companyB
  • JodieR
    JodieR Registered Posts: 1,002
    Thanks very much for your reply, it's a great start :)
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