Splitting busines

Splitting busines

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A client is buying a take away business which consists of a chinese take away and pizza take away. Both business will exceed the VAT threshold but seperatley they won't so he is considering seperating the two elements. Obviously, I am concerned about HMRC aggregating the two but he is considering putting the chinese take away in a limited company and the pizza in his sole name.

He will be trading from the same premises for both but seeing that these are two completely different types of take away , his suppliers will be different, there will be different bank accounts and anything else he can seperate he will, is this enough to defeat any attempt by HMRC to aggregate them and is there any further steps he can take, e.g. putting the pizza take away into a limited company.  

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By Sunshine Onerenidi
09th Aug 2011 13:28

"He will be trading from the same premises"

How many kitchens and how many sales counters are there?  Will there be separate staff for the two business?

Take advice from an accountant/tax practitioner, Mr A B Osman:

"A tax consultant, also providing financial and accounting services, acted as a sole practitioner. His wife provided similar services, also as a sole practitioner, from the same office. Additionally he and his wife provided similar services in partnership, again from the same office, and a company controlled by him and his wife also provided similar services from the same office. The Commissioners issued a direction that all four businesses should be treated as one business under what is now VATA 1994, Sch 1 para 2. The tribunal upheld the direction and the consultant appealed, contending that Sch 1 para 2 contravened European Community law. The QB rejected this contention and dismissed the appeal."

Also, it sounds as though your client is purchasing a going concern.  If the existing owner is VAT registered, but your client(s) won't be, it isn't a TOGC and VAT will need to be charged on the sale(s), and which won't then be recoverable.

Regards.

Sunshine Onerenidi

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By Ken Howard
09th Aug 2011 13:56

Can he sublet instead?

Rather than "running" both businesses, could he not find someone else to run one of them independently, i.e. a relative?  That way, the relative could pay a "rent" for the use of the premises and equipment and only the rent would be included as taxable turnover of the main owner, not all the sales of both businesses.  Obviously, you'd need separate counters and separate equipment (fridges etc) and cooking/food prep areas, and even better would be staggered opening hours so that one could be open when the other was closed for at least a few hours per week.  If it's genuinely two independent people (not spouses) running two businesses, then it will be an uphill struggle for the VAT man to aggregate them together - just by virtue of sharing premises doesn't make them one business as long as there is a fair degree of separation within the building re equipment etc.

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By brianscholar
09th Aug 2011 14:21

Splitting business

Thank you Very helpful comments.

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By stephenkendrew
10th Aug 2011 09:29

This may help

In this case a husband running a sandwich shop during the day was separate from a partnership (with his wife) running an outside catering business in the evenings from the same premises using the same equipment and vehicle: -

http://www.financeandtaxtribunals.gov.uk/judgmentfiles/j1720/19307.doc 

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