Readers' forum: Joining forces

Adam’s company Adam Ltd runs a small household goods business. He sources the products in bulk overseas and sells to a handful of local retailers. His company is VAT registered because so are all its business customers and Adam Ltd can thus recover input VAT on relevant administrative expenses.

Import and freight costs of relatively small shipments significantly reduce Adam’s margins. Consequently Ben – who is Adam’s friend and who imports goods for his own company Ben Ltd – suggested that Adam join him on the imports and share the costs pro rata. Adam readily agreed.

Thus when Ben is to import £50 000 worth of goods Adam will add stock of £5 000 to the order and will pay Ben 5/55ths of any costs incurred.

Ben charges Adam £1 000 for the service and for storing the goods in his warehouse in the short term ...