I have been approached by a potential new client who has a leased burger van and has operated it for 30years +. he is thinking of semi retiring and handing over the reigns to his offsprings. his idea is that each get 3months of the year trade leaving him with the sept to December period which should be enough for him to live on. questions are, can he sublet the lease (the lease permits this) to his children through their own separate ltd? are there any vat implications? on paper I can't see anything wrong however there is the upside of vat savings which HMRC surely will not be too happy about. you thoughts would be happily received
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Sounds a lot of hassle
HMRC have a number of provisions when a business tries to disaggregate a business. The measures have been introduced by HMRC to prevent the avoidance of tax by the creation of any artificial separation.
HMRC look into whether the activities are closely bound by financial, economic & organisational links. HMRC can make a direction under which the business has to be treated as a single taxable person.
You would as a bare minimum have to keep separate books and records for each of the businesses; have separate contracts of employment if any employees were ever used; maintain separate stock records -what happens to the stock when the next family member takes over the running of the food van? What about insurance of the van? Does the insurance cover each member or is renewed on annual basis?; How is any kitchenware financed and by whom? Who is responsible for the replacement of kitchen utensils.
Also not sure why a mobile food van would want to be limited company.
Malcolm McFarlin
Notice of Direction
The taxable person liable to be registered under VATA 1994 Sch 1 with effect from the date of the direction or a later date, if specified. If already registered he will cease to be liable to be registered from the date of the direction.
Your client[s] could make an appeal against a direction issued by HMRC. There are a number of cases were HMRC's direction was upheld and also cases where the appellant was successful.
The appellants were successful with respect to a dry cleaning business operated from separate premises by a mother, her son and his common law wife; and a wife of a publican providing bed & breakfast facilities and paying 35% of income to her husband.
Unsuccessful cases were a married couple carrying on a business as a cafe and bread shop from the same premises; husband and wife acting as tax consultants from the same office; and catering at a public house.
Your scenario is a bit different -almost like a taxi firm which hires out cabs to owner drivers. Presumably the father would charge for the hire of the van and receive payment or a commission.
I don't know if he would have to consider changing the name of the business each time a family member commenced his turn to run the business.
It sounds that you may be involved in an interesting VAT Tribunal case at some stage in the future!
Malcolm McFarlin