Associated Companies?????

Associated Companies?????

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I have a client who has his own Ltd Company he owns 100% of shares. Business doing pretty well.

His sister recently became divorced and he has helped her to set up a business (ltd co) doing what he is doing from a shop but over the internet (mainly ebay). He has told her everything she needs to know about the market and has passed her contacts, advice etc. He also gave her some cash to start the business up.

She is the sole director of the company, my client has taken 50% of the shares in this company for helping out and will received only dividends from any profits.

Are the companies associated, and my client is now worried that the combined turnover from both companies comes to more than the vat limit and that he may have to regidter and so will she? Any thoughts please.
CJS

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By User deleted
20th Jul 2007 11:18

May well be associated
He owns 100% of one company, and 50% of the other, so not associated by share capital.
Looking at loan creditors, who gets the most if the sisters company winds up?
Assuming set up with say 100 £1 shares, then on winding up, each shareholder might get at least £50 each.
Loan creditor? Well, he would get his loan back, which may be higher than the shareholders get. If so then the loan creditor brother controls the sisters company and the two are then associated.
This all depends on the balance sheet, as if the company has lots of assets, then assets - loan creditor divided by 50% (i.e. each shareholders share) may be £more than the loan creditor.
The answer is for the sister to repay the brother (he could then loan her money privately, which she in turn could loan back to her company), but it may not matter if the companies are both within small companies tax rates.

VAT is nothing to do with all this, the associated company rules are for company tax. Sisters company will have a separate VAT reg.

Hope that helps.

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By wdr
20th Jul 2007 15:43

Just to add one comment to what Nicola has said-you will find it
...because the Revenue would argue that there was manifestly commercial interdependence between the two companies. On the figures this seems academic, if turnover is below VAT threshhold

That has no bearing on the VAT question, however.
I would resist a notice under VATA 1994 Sch 1 para 2 that this is 'fragmentation' of a business.

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