We have a partnership client - husband & wife - who run a guesthouse business which is registered for VAT and operates well over the VAT threshold. They are considering running a furnished holiday let by means of a separate partnership but with still only the two of them as partners.
Would this be caught by the existing VAT registration in which case would a separate legal entity in the form of a limited company be a more appropriate trading vehicle?
Replies (7)
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Where is the partnership?
Because Scottish partnerships are treated as separate legal persons, even if identical in composition.
(I'm not saying that the disaggregation rules would not bite in that case - they may well do.)
TOMS?
The provision of furnished holiday lets may fall into the Tour Operators Margin Scheme. If so, then the 'cost' of including that in the existing VAT registration will be much reduced.
Absolutely
The buying in and re-selling of accommodation falls within TOMS; HMRC Notice 709/5, chapter 2. Got to be worth looking at.
Still puzzled
If they purchase the holiday accommodation via the existing partnership and then let it as furnished holiday accommodation, surely that is not within TOMS.
Or are you suggesting that a separate entity acquires the freehold and then makes the accommodation available to the partnership which re-sells it? I can't see what that arrangement achieves.
I am of course assuming that the intention is that the "client" will own the property.
Put it in only one name
Put the FHL in one spouse's name (No VAT registration required until limit is reached). Then vary the split of partnership profits from the guesthouse such that the other spouse takes more so as to even out the profits from the 2 businesses. (Or whatever split of profits is best).
How can it be TOMS
If they buy the freehold of the property then it is an in house supply and not subject to TOMS. It can only be TOMS if the accommodation is bought in and supplied on without material alteration. Otherwise it will be holiday let subject to VAT if within the existing partnership and possibly not if in another legal entity.