Hi,
I should be grateful for your comments on a scenario I have.
I currently have a client who has an online retail business as a sole trader, but has not yet hit the VAT threshold and so is not registered.
They are now thinking of setting up a separate branch/business selling the same items but by 'wholesale' to the trade. It is certain that this business will hit the VAT threshold and will need to be registered for VAT - in any event, selling to other businesses and not to individuals, charging VAT on the goods will not effectively increase the price (or reduce the profit - whichever way you see it).
My questions is, would it be acceptable for two different businesses to be set up – one for retail not being VAT registered, and another for wholesale being VAT registered and if so? I know you are not supposed to split similar trades for VAT etc – but would that be the case in this situation?
I look forward to your comments/ideas.
Thanks
Replies (7)
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here
http://www.hmrc.gov.uk/vat/start/register/when-to-register.htm#7
Your client seems to be trying to do what HMRC states they should not do:
Situations that HMRC may consider a single taxable person for VAT purposes include:
Separate entities selling to registered and unregistered customers. The VAT-registered entity sells only to VAT-registered customers, and the entity not registered for VAT sells to customers who are not registered for VAT.
It's the person who is registered....
....and not the business.
If the same person owns two separate businesses, they need to be considered together for VAT registration and accounting purposes.
If your client wants to run two businesses with different VAT status, then he needs to ensure the ownership details of the two businesses are different and that the disaggregation isn't artificial.
Agree with Adam Arca.
Although, can your client get round this by introducing a partner (spouse) to one of the businesses, therefore seperating the two?
Hi TT123
I am not eniterly sure but I think a ltd co and a sole trader would be seperated but then he would have to consider the corporation tax, increased accountancy fees etc - would it then be worth just been VAT registered for both parts of the business?
Have a look at an earlier question on the same subject: https://www.accountingweb.co.uk/anyanswers/forming-second-ltd-company-avoid-vat-turnover-threshold
Looks like a similar situation to me, whether your client is forming a ltd co for the second trade or starting a partnership with the wife.