Is this quite above board?

Mark 99

I visited a possible client yesterday, who runs a small business, which became a limited company last year. He told me openly that his company sometimes does work for other companies without charge, and these companies similarly help his out. By exchanging services, a sort of bartering, he says these activities don't need to go in the books.

This sounds a little dodgy? Do people think it's legal and ethical?

Mark

Dcollins

You're right, each transaction should be recorded. How would he account for time, materials or supplies if a tax investigation (sorry - Compliance Check) took place?

Essential to invoice correctly and keep proper records if it's a VAT registered company.

Monsoon

Bartering happens. Fact of the real world.

The bottom line is if both services are allowable expenses for the respective companies, and there is no impact on payment of VAT (i.e. both are registered or nethier are) and there is no impact on the VAT threshold (e.g. with the bartered sales included VAT threshold gets breached) then there is no loss to the revenue.

In this case I would advise in writing as Dcollins says the correct thing to do. Some practitioners would then take a pragmatic approach and probably ignore it if there was genuinely no tax loss.

If there is an issue with lost tax revenue then it becomes more complicated and you have to consider the implications of the MLR.

I also believe anyone is allowed to give their services away for whatever price they like (e.g. if I do my parents tax return genuinely for free then that is fine, both for corporation tax and VAT) but if you actually receive a consideration (i.e. a service of value in return) then output tax should be declared.

If it's goods not services then cost of materials clearly can't be allowed.

Mark 99

As soon as a client says 'It's so it won't have to go through the books', my suspicions are raised. I've actually made my excuses now, as there are a few things which don't seem quite right there.
As a new part time MIP, I want to choose my first clients carefully.

T.C.

Good move...if you are not comfortable with the business dealings don't get involved!

PGM

Dcollins wrote: »

You're right, each transaction should be recorded. How would he account for time, materials or supplies if a tax investigation (sorry - Compliance Check) took place?

Essential to invoice correctly and keep proper records if it's a VAT registered company.

I think there is a vat issue.

You can only reclaim vat on materials if it meets the requirments, 3 C's, contract, consideration, customer. And here there is no consideration ie no payment if its done for free.

If you're classing the work done for you as this consideration, then a vat only invoice should be raised for the value of the work.