Splitting the company for VAT reasons

Splitting the company for VAT reasons

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I client of mine wants to split his letting and estate agency business. One company will just carry out lettings while the new company will just do Sales of Residential /Commercial Property.  Turnover is only £130,000 and they are currently VAT registered.  They are thinking for the Letting Business to be non-VAT and Sales/Residential business to be VAT registered.  They have a few VAT supplies but they want that to be passed over to the Sales/Residential business as costs are common. 

The Reason for the letting business to be non VAT registered since all their customers are non VAT registered and perhaps they will gain a competitive advantages as it is cut throat in the area they are located.  Both companies will have different directors (though both directors live together) and staff.  They may even have their own website but they will be trading under the same name and same office.  4

Do you think HMRC will argue they are the same company and hence VAT should be charged on the letting business. Are there any other risks with this set up ?

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chips_at_mattersey
By Les Howard
01st Jul 2014 14:16

Business splitting

The problems associated with your suggestions are:

- there will be a reduction in VAT payable, which is one of the HMRC tests to be applied;

- a single business is being split (whether or not it is an artificial split);

- HMRC may be suspicious irrespective of organisational separation;

- using the same name will clearly suggest to HMRC that the two businesses are (should be) one.

Where HMRC issue a formal Notice of Direction to aggregate two or  more businesses, it cannot be displaced unless you can show that HMRC acted unreasonably in issuing it. Given the facts you describe, you will find it difficult to successfully argue that.

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RLI
By lionofludesch
01st Jul 2014 14:25

The key thing is that the split must be for bona fide business reasons and not avoidance of VAT.

On the facts stated, you have an uphill task there.

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