Hi and thanks for looking at this.
I am a very worried Director. Please bear with me while I try and explain the situation. I appreciate your time. i know this is all very cagey, because i dont want to be identifiable by this post, but let me try and give you a description of what is going on.
Some years ago i opened a second, separate company, the idea being to split my business for domestic and commercial clients.
My accountant told me that this is ok, and he does the books for both companies. he is fully aware of the situation, and we have conversed by email and phone many times regarding it
About a year ago i happened to be talking to another accountant. I told him what i was doing, he said thats a real no no. I then spoke to another accountant who said that it sounded ok. so 1 for sure, 1 not sure, 1 against.
Since then i have tried not to think about it but i'm getting so stressed over this now that i cant let it go on any longer.
I've read many things about the rules for doing this and I still don't really know what to think. In the end I guess it doesn't matter what I think, but what the HMRC decides.
i have 2 companies, lets call them A and B.
1) Ltd company
2) Incorporated say 10 years ago
3) Vat registered for say 5 years ( I also opened company B around the same time as A went VAT registered)
4) Services charities, sole traders and businesses, basically, if you have a business name, then you are serviced by this company. It works for VAT registered and non VAT registered companies and sole traders. There aren’t that many non VAT registered customers, but there are about 15%
1) Ltd company
2) Incorporated say 5 years ago
3) services domestic customers, none of the customers are vat registered.
4) Has never been VAT registered
I am the sole director of both companies.
Both registered to the same address. That address is my home address,
I have a workshop there, which customers of both can come to.
About 50 % of the turnover of both is made up of labour, that is further split to about 30% in the workshop and 70% on site at customer premises.
They both turn over about the same amount each year.
Due to the nature of my work, I sell a lot of the same kind of items to both sets of customers, although there are things that sell to the business customers that are way more expensive and numerous than domestic customers. Some of the things I sell to business customers I would never sell to a domestic customer.
The level of skill required to deal with company A customers is far above that of company B.
Some of the items I sell to both sets of customers are discounted for domestic customers.
The labour rates are currently set at and £x/hr + VAT for company A and £x/hr for company B and have been for many years. (where x = x). I have wanted to change this for a while now, so that business labour is more expensive, but haven’t felt the market was right for it.
I have separate bank accounts for each company.
I have separate accounts for each company.
The invoices and quotes I send out are distinctly from each company, with the correct company number etc on them.
The company logo is the same for both, simply because I like it.
The terms and conditions of business are the same for both companies, simply because I have never bothered to change them as I think they are fine and equally well apply to both sets of customers.
A doesn’t really advertise except for mailshots that I did for a few years about 4 years ago. A tends to get customers because they are originally a customer of B, and they either need help with their business or their employers business.
I only have one website which really is for company B. It does say that we do both domestic and commercial on it. If someone calls and they are clearly a business customer, I tell them that we run a separate company for that and explain the differences in price and service.
Business customers get preferential treatment for issues in terms of fix time for an issue.
A buys all the parts, simply because it is easier. B buys what it uses at cost from A about every 3 months by the sending of a (VAT) invoice from A to B
Lets say that over the course of its existence, within the last 6 years, company B has turned over £250k.
What I would like to know is:
1) Is HMRC likely to see these as separate?
2) If not:
a. Are they likely to be able to retrospectively charge VAT
b. If they retrospectively charge VAT, will they charge interest and at what rate
c. If they retrospectively charge VAT, will it be mitigated by the VAT that I could have claimed back if it was actually VAT registered? (it buys all its parts from company A which is a VAT registered company, and so has VAT receipts for everything it buys)
d. If they retrospectively charge vat, will this be mitigated by the corporation tax man etc, as the amounts that I would have paid would be lower
e. for how many years can they retrospectively charge VAT?
f. can i get fined or go to jail for this if they decide i am committing fraud?
3) what should I do? I don’t want the sword of Damocles hanging over me for ever.
I really appreciate your time and thanks for reading and hopefully providing some guidance.