Hello,
I run a computer shop that also offers computer repairs in retail unit inside a shopping centre.
We are currently paying VAT on the fixed rate scheme @ 10% and our turnover is around £210,000. We have seven employees.
I was wondering whether it is feasible and legal to split the business into two so that the retail shop is VAT registered @ 20% and the service shop remains on the 10% scheme but run both businesses from the same premises.
The reason for my question is as follows:
Most of the service and repairs require no purchases and and therefore no VAT to claim back so the 10% scheme works well.
However, retail sales are adversely affected by the 10% scheme.
If we build a computer system that costs £833 before VAT and mark it up by 30% the sale price on the standard VAT scheme would be £1299 providing around £250 gross profit.
The same computer system would have to be sold for almost £1400 to make the same profit under the 10% scheme and that' puts us at a price disadvantage and drives customers away. This is affecting the growth of the retail shop.
Both businesses would be paying VAT albeit on different schemes, so I'm not sure there is any VAT avoidance but I don't want to cause any kind of headache legally.
Many Thanks
Sean
:)
Replies (5)
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Is that ...
"I'm not sure there is any VAT avoidance"
Is that not what your plan is intended to achieve?
I suspect that the separation wouldn't work but there are people who can confirm.
just come off FRS
Sounds like sole motivation for split is VAT avoidance, so don't do it.
Come off FRS, you might lose a trivial amount on FRS side but should be easily compensated on retail side.
Plus you're getting very near turnover threshold to have to leave it anyway.
FRS rule
There is a lesser-known rule in the FRS legislation which prevents a person joining the scheme if he has been 'associated' with another person in the previous 24 months, if HMRC consider a risk to the revenue. This effectively prevents business splitting such that there is a VAT 'loss' as a result.
The guidance is here, at para 3.8: https://www.gov.uk/government/publications/vat-notice-733-flat-rate-sche...