Reclaiming VAT to pay onwards

by **Kitty Kat** on Tue Oct 11, 2011 9:33 am

Hi all

A client has bought from another client and the transaction has £100,000 of VAT within it. We have just submitted the return for the buyer who have promptly reclaimed the VAT on their September return. As the other company has an October quarter, A can get their refund then pass it to B who then passes it to HMRC next month, thus neither is ever out of pocket.

At the back of my mind I feel like there is some rule that says HMRC can refuse to give A the £100,000 until B actually pays it to HMRC, but I can't find it anywhere, did I make it up? Does it happen often or only for companies who do it often?

by **Generix** on Tue Oct 11, 2011 10:23 am

Kitty Kat wrote:Hi all

A client has bought from another client and the transaction has £100,000 of VAT within it. We have just submitted the return for the buyer who have promptly reclaimed the VAT on their September return. As the other company has an October quarter, A can get their refund then pass it to B who then passes it to HMRC next month, thus neither is ever out of pocket.

At the back of my mind I feel like there is some rule that says HMRC can refuse to give A the £100,000 until B actually pays it to HMRC, but I can't find it anywhere, did I make it up? Does it happen often or only for companies who do it often?

Nope there is not, at least one not used in practice. HMRC of course can carry out a pre-cred on the £100k and delay it somewhat, and then do a cross reference check to ensure the other side does eventually pay.

A lot of large businesses structure their staggers like this for specific supply chains to gain the cashflow advantage.

Only exception to this is mtic fraud.

by **Generix** on Tue Oct 11, 2011 10:24 am

Should have read:

Nope there is not, at least not one used in practice.

by **Kitty Kat** on Tue Oct 11, 2011 10:42 am

Generix wrote:Should have read:

Nope there is not, at least not one used in practice.

Cool, thanks

I'd hate to have to tell the client they couldn't have the £100,000 until they passed it to the supplier.

by **Generix** on Tue Oct 11, 2011 11:36 am

Kitty Kat wrote:
Generix wrote:Should have read:

Nope there is not, at least not one used in practice.

Cool, thanks

I'd hate to have to tell the client they couldn't have the £100,000 until they passed it to the supplier.

Not really possible but HMRC could have brought up the bad debt relief rules (i.e. 6month rule) if the invoice (or part of it) was unpaid for 6months, but its not possible to stagger them this way anyway.

Only other argument they could raise is tax point, but this is a matter of fact, not anti-avoidance or such provisions.