Guidance on parent companies involved in UK company transactions

Is the parent company:

1. Acting as an agent only, or
2. Bearing the cost itself?

If acting as agent:

• Costs belong to the UK entity and must be accounted for in the UK entity’s books
• Parent is simply settling the invoices on behalf of its UK subsidiary
• Parent company books as intercompany payable

If bearing the cost itself:

1. Supplier / contractor invoices should be addressed to parent entity
2. These costs should not be booked in the UK entity
3. If the parent company wants to pass on any of these costs to the UK entity then it must raise a recharge invoice

What to watch out for:

1. Check that the invoices are addressed to the UK entity, with the UK entity address – only then must the costs be accounted for in the UK entity books
2. If it’s a UK supplier / contractor (who is VAT registered), then check that they are charging VAT as the services are being provided to the UK entity, even though the parent company based outside the UK is paying for their services
3. If the invoices are addressed to the parent company, then they are costs of the parent company, and they can choose to recharge these costs to the UK entity should they wish to.
4. Contractor invoices – if you are unsure whether the contractor agreement is with the UK entity or the parent company, please ask the client to confirm, as the contractor should be invoicing the entity who their contract is with

If you are unsure how costs should be treated, then please ask one of the team.

FLAG

If a client asks a VAT / TAX question, unless you are absolutely sure of the answer, please can you make sure to check in with one of the team for guidance – they will either confirm your understanding or suggest that a Tax / VAT specialist needs to look at this and they can support you with this.

We have a team of VAT / Tax specialists within Finerva / Rouse so we must make sure that if we need to run a question past them that we do so, rather than giving incorrect advice to our clients.