Claiming input tax correctly for 2 linked companies

pauldbaker95
pauldbaker95 Registered Posts: 13 New contributor 🐸
in VAT
Hi all,

Our business group has 2 companies that I look after. One is effectively propping the other up in the initial stages, covering bills it owes and once the newer business is off the ground, it will pay it back.

I am currently coding payment of bills to a 'Loans Receivable (New Company)' account for the main company's Xero (the company covering the bill temporarily), and recording a manual journal on the new company Xero to a 'Loans Payable (Main Company)' account to show it is owed back as a liability - hope that makes sense!

My question is: if the bill is VAT reclaimable, do I claim this on both Xero company accounts or just on one side? I had thought you cannot claim the input VAT twice, but I could be wrong? Unsure who ultimately should be claiming it back: the main company paying for the bill temporarily, the new company who ultimately owe the money, or both?

Thanks

Comments

  • douglasstroud
    douglasstroud Registered Posts: 309 Dedicated contributor 🦉
    As always with VAT ‘who is supplying what to whom’
    The only business that can claim the input VAT is the one receiving the supply, it does not matter who pays for it.
    Would it not be easier to just loan a set amount to the Company and then they can pay the bills, seems to me the way you are doing it regarding every bill could become very messy.
    I take it when you say business group you do not mean a VAT group?
  • pauldbaker95
    pauldbaker95 Registered Posts: 13 New contributor 🐸
    douglasstroud said:

    As always with VAT ‘who is supplying what to whom’
    The only business that can claim the input VAT is the one receiving the supply, it does not matter who pays for it.
    Would it not be easier to just loan a set amount to the Company and then they can pay the bills, seems to me the way you are doing it regarding every bill could become very messy.
    I take it when you say business group you do not mean a VAT group?

    Thanks for your answer. Yes, it is very messy and annoying (!), I think the businesses personally should just go under 1 company but it is the director's decision. You have answered my question though, thank you. By group, I just meant that the business is technically a group providing 2 services under 2 business names but the prefix is the same and the suffix is a slightly different industry than the other. They both operate under one "group name" though. Thanks again.
  • pauldbaker95
    pauldbaker95 Registered Posts: 13 New contributor 🐸
    One more questio
    douglasstroud said:

    As always with VAT ‘who is supplying what to whom’
    The only business that can claim the input VAT is the one receiving the supply, it does not matter who pays for it.
    Would it not be easier to just loan a set amount to the Company and then they can pay the bills, seems to me the way you are doing it regarding every bill could become very messy.
    I take it when you say business group you do not mean a VAT group?

    One quick question if you don't mind. At what point can the receiving supply company claim the VAT in this scenario? Can they claim it back as soon as it received the service, or does it have to wait to claim the VAT back once it has paid the other main company back the money for covering the bill? I hope that makes sense!!
  • douglasstroud
    douglasstroud Registered Posts: 309 Dedicated contributor 🦉
    So it is just 1 Company and 1 VAT number?The date the input VAT is accounted for would depend on what type of scheme you are using, VAT cash scheme or VAT accrual scheme?
  • pauldbaker95
    pauldbaker95 Registered Posts: 13 New contributor 🐸
    There are 2 companies and 2 VAT numbers, both are managed by the same director. Effectively they are the same main business name prefix with a different suffix (eg: ABC: Tech Services Ltd and ABC: Education Services Ltd). One is supporting the other with payment of bills until it gets enough customers to support itself on its own.

    Both companies use the VAT accrual scheme so I need to know if the company that is being supported can claim the VAT on the transaction BEFORE it pays back the other company that is supporting it, or if it has to wait to claim the VAT AFTER it has officially paid what it owes the other company? I am assuming from what you said earlier that the company fronting the payment for the bill cannot claim any VAT because it isn't their expense once the company it belongs to pays the money back.
  • douglasstroud
    douglasstroud Registered Posts: 309 Dedicated contributor 🦉
    The Company receiving the supply can claim the input VAT using the normal time of supply rules.

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