Vat Registration

Vat Registration

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Client has an established business running a music festival as a sole trader and his gross annual ticket sales are below the Vat threshold. For the first time he introduces a bar to the festival and creates a Ltd company with himself as the sole Director to handle the bar sales. The Vat Office have caught up with him and have confirmed the company should have registered for Vat on the second day of the Festival when the bar sales exceeded the Vat threshold. They also state the bar is an integral part of the festival and as such the ticket sales should be part of the overall Vat liability even though it is trading as a sole entity. 

Are they correct or do we have an argument. Any thoughts would be welcome

Malcolm McFarlane

Replies (5)

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chips_at_mattersey
By Les Howard
11th Mar 2015 08:59

VAT Registration

I think HMRC's case is quite strong, as the activities of the Festival have extended when the bar opened. It might have been different if he had 'franchised' the bar to an independent third party.

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By johngroganjga
11th Mar 2015 09:09

Do you mean that this is artificial separation Les?

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chips_at_mattersey
By Les Howard
11th Mar 2015 09:26

Artificial Separation?

No, but the bar should be properly treated as part of a single business. HMRC can use Sch 1, para 1A to address artificial separation. But they can also hold that there was only ever one business, and avoid the tests for artificial separation. This also means they can back-date their action, which para 1A does not provide for.

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By johngroganjga
11th Mar 2015 09:34

But the two parts are under separate ownership. I thought HMRC had to show that the separation was artificial in order to aggregate them, otherwise they can't. Am I missing something?

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avatar
By DMGbus
11th Mar 2015 11:34

Backdating amalgamation

For HMRC to succeed in establishing that there was one business at some prior date they would have to prove that the arrangements in place were a sham.  So the two entities need to gather evidence to rebut this "sham" proposition with the following factors being helpful ones to prove two legal entities properly operating two separate trades:

Drink purchase invoices in company nameRental invoices for space occupied by beer tent / trailer in company namePromotional material for beer tent / trailer in name of Ltd CoPromotional material for concert to be in sole trader nameSite rental invoices for music festival in sole trader nameIf wages were to be paid to employees then there would be separate PAYE schemes for each business / entityCompliance with regulations regarding business ownership disclosure should be demonstrated

Attention to detail can pay off in these circumstances, but in my experience it is often lacking as not thought about until too late.

HMRC need to be reminded (ie. they must certainly know this fact but are not letting on about it) that franchise arrangements / site subletting is a perfectly normal and well established business arrangement for special events of this nature with separate legal entities legitimately operating on one site at one event.

As an aside it is interesting to note that apparently the beer sales in one month were more than the concert ticket sales in a year!

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