VAT

VAT

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I have a general query , if somebody can reply,

If An accountant is running an accounatncy firm and working as Ltd company which is registered for Vat and providing,bookkeeping,VAT and other services, He has another company which is only providing corporate services and not registered for vat as turnover of the 2nd company is less than threshold,

My question is this legal way as i am not sure whether this will be considered to avoid charging VAT , as both companies has same director and both companies has same reg office address, and both companies providing service to same clients, for same client accountancy services charges are raised from one company and corporate services charges from seperate company.

Many Thanks

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By David Richards
03rd Mar 2011 20:32

Artificial separation?

Sounds dangerously close to 'artificial separation' to me.

See section 13.5 of VAT Notice 700/1.

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By Rob Fox
04th Mar 2011 12:04

VAT - separation of businesses

I agree that you should look at the HMRC guidance on artificial separation.

If the businesses are indeed separate, a key consideration is joint costs.  Presumably one company is responsible for establishment costs (such as premises, IT, utilities) and a re-charge is made (which may be at the year end) to the other.  If it is the VAT-registered company that incurs the costs, VAT is chargeable to the other.  Beware here of re-charging at too low a value - HMRC can direct open market value if supplies between connected parties, where the recipient can't calim full credit for input tax, are inder-valued (see VAT Act 1994, Schedule 6, para. 1).

If the non-registered company incurs any shared costs, it cannot VAT on any re-charge to the other company, but the registered company cannot treat VAT on those costs as it's input tax.

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