Reducing VAT burden for pub, B&B, Restaraunt

Reducing VAT burden for pub, B&B, Restaraunt

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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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By WhichTyler
23rd Mar 2014 17:09

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 

 

http://www.sidneyphillips.co.uk/advice.php?p=12

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By Tosie
23rd Mar 2014 19:55

Bed and Breakfast

Could this be run as a seperate ltd co ?

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Replying to lionofludesch:
chips_at_mattersey
By Les Howard
24th Mar 2014 09:04

Bed & Breakfast

Tosie wrote:

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.

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By JR1990
23rd Mar 2014 21:16

Hmm

That is what i was thinking. Run as separate Ltd thus avoiding paying £10.4K Vat on Restaurant and £4k on B&B. Restaurant would be as partnership as turnover is 104k. The pub is £208k turnover so I see no way to avoid VAT registration on that

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By WhichTyler
23rd Mar 2014 21:50

Why...

...do you think the restaurant (assuming it is separable) would have a higher VAT threshold if run by a partnership?

 

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Replying to Glennzy:
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By JR1990
25th Mar 2014 13:02

Yeah I did think that was the case originally. Other than that I have no idea how I could reduce the burden of VAT. Pub £208k turnover & Restaurant £104k. I can separate the B&B to save £4073 but I see no way of reducing VAT for the pub or restaurant.

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By WhichTyler
23rd Mar 2014 23:00

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...

 

 

 

 

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Replying to lionofludesch:
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By JR1990
24th Mar 2014 09:04

True but..

AS a student I am expected to make use of any resources available to me. This site i view as a resource. I can go to see a tax specialist and obtain information as many on my course have however I cannot afford to do this. If i find the information in a book on the internet or on this website makes little difference. I just copied the question. I accept if some of you feel I shouldn't use this website. I see this as taking the initiative and being proactive in finding the answers I need. Also the work is only a short part of an assignment and once I figure out what it is i will find relevant references to back up the point. Problem is i have been struggling to find a definitive answer. Reason being I have read on the HMRC website that you are not allowed to split businesses etc just for the purpose of avoiding VAT.

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Replying to lionofludesch:
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By JR1990
24th Mar 2014 09:08

It is real

The other post is a real issue for me unfortunately. Professional ethics is a year 1 module. I done an essay on the Enron case.

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By WhichTyler
24th Mar 2014 10:21

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...

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By Gaffa201
24th Mar 2014 12:03

Cash Accounting

Have you considered the cash accounting scheme to assit the cash flow of the registered businesses?

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