Client has had sucessful and VAT (voluntarily) registered business (A) for many years and uses the flat rate VAT scheme. Client has now started a completely different and separate business(B). Both businesses will continue with him as a sole trader.
Does he have to account for VAT on business B? HMRC say so.
If so would it be under the same VAT registration? Would he then have to stop using the flat rate scheme? The % flat rates for the two activities are very different.
Would running business B as a partnership avoid VAT on that business.
Business B would be unable to claim VAT on purchases, is selling to general public and turnover is not expected to be over £5k and margins are tiny so VAT would probably be the last straw.
Client has thought of de-registering for VAT (combined turnover still under threshold) but would probably lose out overall.
Any solutions?
Thanks
Jane H
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Replies (4)
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Stephen is correct ...
if it makes that much difference then consider an alternative legal structure.
separate businesses
It is the owner that is registered for VAT, not the business.
So, even if both businesses are completely separate activities, the owner must pay VAT on both.
However, if one business was operated as a limited company or in partnership with someone else then the owner is different and both businesses would be treated separately for VAT.
If they were both registered then the flat rate percentage for the larger business would apply.
the question is 2 businesses or 1?
From past experience (all be it about 10 years ago!) I thought the deciding factor was whether the businesses were actually one business at multiple locations.
For eg, the client I recall had several beauty/hair/nail salons all over the North West, HMC&E (as it was then) decreed they were all one business in multiple locations - reasonable enough in that situation.
But, if your client is running two completely different businesses then I'd be inclined to question HMRC and ask how they can be deemed as one.
Hope this is some help!