Staff charges

Mr X owns all the shares in two trading companies A and B. Company B formerly carried on the main trade but its business has dwindled away to next to nothing; however company A has thrived.

For historical reasons all the employees are employed and paid by company B and it receives reimbursements from company A at a sufficient level to enable it to pay its overheads and make a small profit. No invoices have been raised but both companies are registered for VAT.

Unfortunately in recent years VAT has not been charged by company B. Although there is no loss of VAT in total to HMRC we are concerned about the prospect of hefty voluntary disclosure charges.

On the basis that company A now asks for a VAT invoice to cover the amounts paid on a VAT inclusive basis there is a...