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VAT Disaggregation

A sole trader (decorator) is setting up a limited company to keep building projects seperate.

The limited company will have minority shareholdings of 5% each by the individuals two children.

If combined turnover is greater than the VAT registration limit is there a risk of being attacked?

Are the trades sufficiently commercially different?

Does the minority shareholdings help in this regard? (This is done to hopefully provide for the future generation on a future sale etc)

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By Anonymous
03rd Sep 2009 10:47

only you have

enough knowledge to assess whether the trades are, in matter of fact, sufficiently different to assess risk of aggregation dispute.

The legal separation is of course a necessary factor, rather than determining factor, so not so much "helps" as is critical.  Minor kids owning minor stakes is largely irrelevant, although can't be unhelpful.

Ensure the trades are KEPT different in all aspects ;  promo literature, invoicing, web-site, etc etc.

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03rd Sep 2009 17:48

Why are the two being separated?

This is the question to answer. If it is for good sound commercial reasons and not to avoid VAT registration, HMRC should not take action, after answers to the questions asked are provided.

If the separation is to avoid VAT registration then HMRC can direct that the two are treated as one for VAT registration purposes, but only from the date of the direction or a later date as set out in the direction.

On the basis of the little you've told us about the set up, it does seem as though the new entity is to deal with a separate business activity, not just to keep below the registration limit. It might be worth while making sure that the commercial reasons for forming the company are set out in a letter of advice to your client?

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