Client and his wife run a fish & chip shop through a 50:50 ltd company, and are under Vat threshold. They have just bought a second shop in another part of town, and are in the process of doing it up. When they start trading they intend to account for the second shop using a partnership, with seperate bank account and records, thereby avoiding registering for Vat.
Are HMRC likely to question this arrangement, and insist that the turnover is amalgamated, forcing Vat registration?
Tony
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Separation
Note that it is nonger necessary to show that the parts of a business were separated to avoid registration but merely to avoid VAT - but they must still show that there was a business in existence before which was separated. Here there is new shop being opened and genuinely being run as a separate business venture, or so we are told, which could be sold as a going concern completely separately from, and not affecting in any way, the former business. Whilst there might be economies of scale in purchasing has a separation of the existing business taken place? In the old days of preceding year basis would this be regarded as a new trade or enlargement of an existing one?
If a new company had been set with the same ownership they might be more likely to be aggregated especially if the business is separated, but with a partnership and a company and a new staart up in another part of twon? I think it less likely.
If they (HMRC) opt for deemed partnership there are no penalties and it only applies from the date of the order (or later if specified) - the danger referred to below of penalties is where two separate businesses are deemed to have been a partnership ab initio (see the the recent High Court case of Wil v HMRC), from the neginning, then they would go for late registration etc.
Why not......
...have one chip shop owned by one person and one chip shop owned by the other instead of 50/50 ownership of both?
p.s. freudian slip in terminology : "client and his wife".
Er, the business is a company - I suspect the company is your main client? Which is owned 50/50.
No backdating but...
I heard they were issuing penalties for late registration in these cases.
Disagregation
When HMRC find out that the two businesses are run by the same couple and the reason for there being two businesses was to avoid VAT registration they will no doubt issue a direction that the two are to be treated as one for VAT registration purposes.
Important: the direction applies from the date it is issued or a later date - the current rules do not allow for any back tax. There is also, as far as I am aware, no penalty involved, yet.
To answer your question – Yes, eventually.