mostly he had private client. his turnover right now is below the VAT treshold. Its seems that he will do a bigger project in an office building very soon. His accountant says that with this project he will reach the VAT treshold and he need to be registered too. also he should think about incorporating his business. My husband now is afraid of loosing some of his private clients who can not afford paying VAT.
One of my husband's friends works as an electrician and he said he is self employed and has own ltd too. if he works for private clients he is invoicing through his self employed business which is not VAT registered but when he works for different companies he is using his ltd. All the materials that he uses are paid by the ltd even if they were used by the self-employed business. Now my husband is also thinking of incorporating an ltd but keeping his self-employed business too. His accountant told him that this is not legal but my husband would like to go ahead with it and would like to leave his current accountant and ask his friend's accountant to do his books.to me it seems that his friends business is really fishy and i do not whant my husband to go this way.
Am I right if i thing that my husband can not be in the same trade as a self-employed and having a company too?
Thanks
Replies (10)
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You are right to be concerned
It is depressing that the other accountant is happy to do things wrongly, but it is the duty of the taxpayer to do things properly and he cannot later say it was OK because his accountant said so.
The limited company cannot have an expense of the goods it is buying in if they are going to be given to another business to use free of charge. There will have to be quite a bit of fiddling going on here I would assume. When HMRC discover this they can go back years and years and the penalties and interest would bankrupt the people and companies concerned. If one of the companies is VAT registered HMRC will take an even dimmer view of things.
As HMRC are understaffed, and their computer systems are hopeless it could be several years before they catch up with your husband if he decides to take this approach.
At least your husband made the right business decision in marrying you - I hope you can persuade him that it's not in his interests to get on the wrong side of HMRC. I believe prison visiting is not much fun.
Why not make us all feel better by shopping the said electrician?
Or pm me the details and I'll do it!
Another possibility
If the office project is commercial and the other work is domestic there is no reason why you could not be a sole trader and set up a ltd company for commercial work. From what you say it is a new venture.However you would need to match expenses to the appropriate business.
Artificial seperation arises when an existing business gets near the vat level and the business starts creating reasons why they are two different trades.
Not another possibility
If the office project is commercial and the other work is domestic there is no reason why you could not be a sole trader and set up a ltd company for commercial work. From what you say it is a new venture.However you would need to match expenses to the appropriate business.
Artificial seperation arises when an existing business gets near the vat level and the business starts creating reasons why they are two different trades.
Why would you think commercial and domestic are two different trades? Apart of course from the fact that domestic cannot recover VAT and a lot of commercial can. I am pretty sure HMRC would be keen to argue that is not enough of a difference in it own right, you would need far more information than that I think to make such a statement.
This very site gave a decent beginners guide to artificial separation and is as good a place as any to start https://www.accountingweb.co.uk/article/how-deal-artificial-separation/532708
New Venture
I do not think that commercial and domestic are different trades but the op states that the proposed office work is a new venture.
In my opinion it is not a simple yes or no situation and the op's husband should discuss the situation with their accountant.
Wouldn't work
Perhaps the trader should create another Company for Bungalow work too?
A bungalow company wouldn't work - you need a tall storey for HMRC!
RM
Reporting
Presumably if the OP's husband switches to the friend's accountant, the outgoing accountant will have to consider whether they have an obligation to make a report.
If the OP's accountant knows of the electrician's arrangement whereby he charges materials used in his self-employment to his limited company then there may be an obligation on the OP's accountant to report that (if he suspects that the electrician is dishonestly evading tax).
But I cannot see that there would be any obligation on the OP's accountant to report the OP if he left him. At that stage the OP has not evaded any tax & so is not engaged in 'money laundering'. The accountant would merely have a suspicion that the OP intended to evade tax in future - but even there presumably the accountant would recognise that the OP believed he was acting properly (and hence was not being dishonest) so, for that reason also, there should be no report.
David
Why not turn down the commercial project,which will almost certainly have a lower % profit than the domestic. The extra profit probably won't pay for additional accounting and legal fees when HMRC catches up with what's going on. His excuse that the new accountant OK'ed it won't wash as it his business not the accountant's and he signs the tax returns and accounts. I suggest you show your husband all the responses, which might change his mind
temporary blip
If the new contract is likely to be a one off and turnover will subsequently fall to below the VAT threshold why not write to HMRC for permission not to register on this basis?
http://www.hmrc.gov.uk/vat/start/register/when-to-register.htm
If you've gone over the threshold for registration temporarily
You can apply for exception from registration if:
you have to register for VAT because the value of your taxable supplies in the previous 12 months has exceeded the registration threshold of £81,000 (including the value of supplies made by a VAT-registered business that you have taken over)you can demonstrate to HMRC that in the longer term you will only be trading below the de-registration threshold of £79,000
You can ask HMRC if they can make an exception, and allow you not to register for VAT, by sending them a letter, stating why you are applying for an exception. The letter should provide evidence and explain why the value of your taxable supplies will not go over the deregistration threshold in the next 12 months.
If HMRC agrees to make an exception and allow you not to register this time, you must let them know of any relevant change in circumstances - for example, if your turnover goes over the threshold again.
If HMRC does not agree to make an exception, you will become registered for VAT from the day you should have been registered. You will need to account for VAT from that date.