Question about hairdressers

Question about hairdressers

Didn't find your answer?

I have a client who is being clobbered by VAT. In order to keep below the VAT threshold, they intend to set up a new ltd co to collect chair rental proceeds. Would this be acceptable to the VAT office if (a) The shareholders of the ltd co were the same as the sole trader; or (b) The shareholders were different.

Alan

Replies (2)

Please login or register to join the discussion.

avatar
By User deleted
07th Mar 2006 13:35

Unfortunately not...
...I looked at doing something similar for one of my clients but this is not allowed unfortunately.

Thanks (0)
avatar
By theaardvark
07th Mar 2006 16:14

I wouldn't........
Alan,

The rental of chairs to hairdressers is not treated by HMRC as a lease over land. It has been confirmed in numerous tribunal decisions that it is in fact a taxable supply of lease of facilities and subject to VAT at 17.5%.

However, if you create 2 genuinely separate legal entities and each is trading below the VAT registration threshold then both can remain unregistered.

HMRC will take a very dim view of such an activity. Historically HMRC would try one of 2 ways to attack this:

1) Firstly they will try to determine if, in law, they can prove that there is only one business (shared staff, bank accounts, accounting records etc). If this is this is the case then they will retrospectively register the 2 as one.

2) If there is 2 genuinely separate legal entities then HMRC could not change this retrospectively. They can however issue a direction that henceforth the 2 are treated as a single legal entity and the turnovers combined for the purposes of determining registration.

However, it is possible that, following the recent ECJ decision, HMRC could argue that the artificial separation of the activities into 2 entities is an "abuse of rights". If this is the case HMRC could retrospectively register the 2 as one entity.

Hope that helps

Regards

Paul Taylor
VATease - VAT Advice

Thanks (0)