UK Sales and COS recognized twice - legal? as not impacting bottom line?

[radaas]

Hi all, I hope that you can advise on the following, with the inception of a new company where two directors owning 100% of company A will own 48% of company B. Both want recognition of the sale, can't find anything that says this cannot be done as they are all legitimate transactions but I just don't feel comfortable with it.



Current situation

Company A supplies Contractor to Customer

Customer pays Company A = Sales £11,750+VAT

Company A pays the Contractor = COS £9500+VAT

This is in relation to all the work done by Consultant, so is paid a consultant fee (% of margin) = £1,125

Company A accounts

Sales £11,750

COS £9,500

GP £2,250

Fee £1,125

NP £1,125



Get's interesting

Consultant sets up Company B



Company A supplies Contractor to Customer

Customer pays Company A = Sales £11,750+VAT

Company A pays the Contractor = COS £9,500+VAT

Which is as per normal but then

Company B invoices Company A = COS £9,500+VAT

Company B invoices Company A = Margin (COS) £1,125+VAT

Company A invoices Company B = Sale £9,500+VAT


Company A accounts

Sales £21,250

COS £20,125

GP £1,125

NP £1,125


Company B accounts

Sales £10,625

COS £9,500

GP £1,125

NP £1,125


Consultant would like his company to be recognised with the sales work that he has done before the inception of his company, bottom line for both companies are completely unaffected, zero tax effect both VAT and CT as neutralizing invoices. The reason this has to happen is only because it is difficult to move contract that is in place between Company A and Customer for Contractor to Company B. Anything new will be solely between Company B and Customer.

So in effect doubling Sales and COS until contract expires within the year.



What I wanted to do was keep the normal process in place and then get Company B to invoice Company A only the margin £1,125

 

[smallbushelp]

Your scenario is rather confusing. Do you have a specific question?

From what I can gather, Company A hired a consultant (Company B) to do some work for them. The work was in relation to a job Company A was doing for their customer. So, when Company B completes the work, they should bill Company A for the agreed upon price - no more, no less. Company B shouldn't concern itself with the contract between Company A and the customer even if it includes a markup on the work done by Company B. And why would Company A bill Company B for anything? Later, if Company B contracts directly with the same customer, then they can bill the customer for their agreed upon price and not involve Company A.

Was I close to understanding your scenario?