I had a meeting with a potential new client who runs a clothing company. The meeting went well and by the end of it I was offered the role and start next week. So the business places orders in Nepal and the Far East to ship to the UK and then sell back to EU and non EU countries. No problem so far, where it gets a bit complex is that they have a trade partner which works as follows:
Clothing company invoices their customer (Ok)
supplier invoices the clothing company (Ok)
the clothing companies customer pays the trade partner directly. (??)
the trade partner pays the supplier directly (??)
no customer money ever hits the clothing companies bank and no money ever leaves the clothing companies bank to the supplier. So up until now the invoices have been generated in word or excel and do not show anywhere on sage. All that shows on sage as a sale is the cash being paid from the profit on the deal by the trade partner to the clothing company, after the trade partner has charged a fee of x%. The director is concerned that he should be liable to pay the vat on the customer invoices but his accountant has said that the invoices are not his as he never owns the clothes and therefore it is not his responsibility to return the vat? He is convinced that as he is raising vat invoices and the clients are paying against that invoice that surely the clothing company should be returning the vat?
To make it even more complex there is also an invoice finance company releasing funds to both the clothing company and the trade partner against customer invoices as they are raised.
Any comments or advice on the above would be greatly appreciated.
More questions than answers at this stage - when you say 'trade partner' - can you define this more. This could be key!
Is it an agent? Related company? Just another business whom they happen to sell to? Is it fact just the 'clothing company' that isjust an agent? Distributor? When they import the goods who pays the VAT? Who actually owns the stock? Which invoices are the invoice discounting company financing - If the 'invoices arent his' and what do they have a charge over. Think I would need to get more information from them before I agreed to take this one on. would be worth a chat with the Accountant to make sure you have all the facts.
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
The trade partner as far as I am aware is a finance company of some sort (I don't have the detail) but they are not linked to the clothing company in anyway. From the questions I raised it would appear that the trade partner pays any VAT to customs when the goods arrive and that legally they own the goods. There is a contract which apparently the accountant has read and it confirms this. What I don't understand is why the clothing company is raising the invoices using their address and VAT number but the invoices are being paid to the trade partner? Is the trade partner returning the VAT from the customer payment? If not then could the clothing company be liable? The invoice financing is done against each customer invoice and the amount is split between the clothing company and the trade partner (not sure how this is worked out but I guess the profit on each job is known to both parties and therefore it is possible to work out the split when it goes to the invoice finance company).
The MD would like me to post all the customer invoices on to sage as the customers contact him asking for copy invoices and statements and as the invoices are not on sage this is difficult to manage on word/excel and extremely time consuming. I have suggested that by doing this the invoices will create a VAT liability but he seems to want to pay the VAT until he gets 100% surety that he shouldn't be paying the VAT. I can't think of a way of posting the invoice to show VAT without creating a VAT liability? His VAT return is due on 7th May and I am supposed to be starting on 23rd April so not much time to get my head around it.
I will email the client on Monday with some queries that I already have and with the ones that you have raised.
I also think a meeting with the accountant would be a good idea as you suggested.
Hi Chris
Sounds like some kind of Trade Finance deal, perhaps involving Forfaiting, although I could be miles off the mark. I need to have a proper ponder/re-read of what you have put when I have 10 minutes or so. Leave it with me.
Although if anyone else can help - jump in!
__________________
Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
