A client intends to purchase a small country public house which they say has three component businesses. No decision has yet been taken about whether to trade as a limited company or partnership.
The pub itself turns over £4,000 a week inclusive of VAT; purchases inclusive of VAT are £2,000 per week. There is also a pub restaurant which turns over £2,000 (inclusive of VAT) purchases and other expenses come to £800 a week inclusive of VAT. There is also a bed and breakfast which business which turns over £500 a week (inclusive of VAT) the cost of relevant food purchases comes to £30 a week.
All three businesses operate within the framework of a typical public house.
What, if anything, can be done do to relieve the burden of VAT?
Replies (11)
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FRS
Have you looked at the Flat Rate scheme to see if it would be beneficial (6.5% for pubs, 10.5%accommodation, 12.5% restaurant)? Otherwise the margins seem OK but not great.
It's just a hunch, but, given that everyone in the business has the same VAT rates, trying to force a business into viability by tweaking VAT is usually the last resort, rather than the first.
You might find this thread useful...
https://www.accountingweb.co.uk/anyanswers/question/anybody-know-anythin...
and
Bed & Breakfast
Could this be run as a seperate ltd co ?
this seems the best option; sometimes this is a separate partnership, rather than limited company. It will be helpful that promotional material does not confuse the issue. For example, do not offer "B&B with evening meal and drinks" as a single offer, as it implies a single business.
And, on the Flat Rate Scheme. The turnover threshold is low, only £150,000. Also, in the instance where one business is eligible, the FRS cannot be used if that business is 'associated with' another business. This rule is designed to prevent abuse of the scheme.
Why...
...do you think the restaurant (assuming it is separable) would have a higher VAT threshold if run by a partnership?
My mistake...
... I have never used FRS in anger, thanks for pointing it out. And yes I agree that saying 'I have a client..' when you don't is not the best way to make new friends here
We are of course both assuming that the other post is a real issue too, not a 'professional ethics' hypothetical case study...
Definitive answer..
There isn't one. You have correctly identified the risk of potential challenge to disaggregating the business. In the real world I suppose you would
1. find out whether the curent businesses are sparate VAt registrations as part of the due diligence. If so find out how long this has been in place and whether HMRC have approved the treatment
2. if they are aggregated, advise client about the risk of challenge to disagaggregation. You could identify the factors that HMRC are likely to take into account (e.g. customer base, management, marketing) and based on how these are operated, assess whether this is likely to be successful. as this is a risky area, if you want to go ahead you might want to agree it with HMRC in advance.
3. Read up on registration thresholds for partnerhips...
Cash Accounting
Have you considered the cash accounting scheme to assit the cash flow of the registered businesses?