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2 businesses again. 1 with vat, one without

2 businesses again. 1 with vat, one without

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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.

Company A

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%

Company B

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. 

Replies

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15th Jul 2015 21:11

I am in the against camp.

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15th Jul 2015 21:50

thanks for taking the time to read everything, however, can you give me any more info on the questions i have please?

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By marks
15th Jul 2015 22:07

i am also in the against camp

There are many grey areas in accounting where you can have one accountant taking one view and another taking the complete opposite but for various reasons they can both justify that they are correct.

Based on the information you have given I would say you are operating one business for the following reasons

1. Business B was opened at the time business A became VAT registered.  What was the reason for this other than to avoid VAT for business B customers as assume before then both types of customers went through the one company.

2. The businesses run from the same premises, same registered address, use the same website and effectively sell the same things.  The only difference is that one customer base is VAT registered and the other isnt.

Regarding the queries you have raised that is something would recommend going to seek independent specialist advice which you would need to pay for.  Would recommend speaking to a VAT specialist (there are plenty out there and your current accountant might know one they can recommend).

You could always ask HMRC to do a visit.  If you are confident that everything is ok then you shouldnt have anything to worry about but I would.

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15th Jul 2015 22:08

Maybe

One issue here surely is whether HMRC could argue there was ever only one business.  If they can, they can go back 20 years.  If there are however separate businesses, but they are commonly controlled etc, HMRC can issue a direction that they must be seen as one.  This can only be done going forward.

I would also add that I have also queried in my mind whether HMRC could ever say a limited company is not a separate business, being a separate company on the companies house register.

Sorry, the questions are too detailed, but don't give up hope - it CAN work and I would strongly advise you to get professional help.

Good luck!

Wayne

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15th Jul 2015 22:12

Against

1 Is HMRC likely to see these as separate?

NO. THERE ARE TOO MANY THINGS COMMON TO BOTH BUSINESSES: YOU, PROPERTY, ETC.

2)      If not:

a.      Are they likely to be able to retrospectively charge VAT

HMRC WILL TREAT THE SALES AS INCLUDING VAT

b.      If they retrospectively charge VAT, will they charge interest and at what rate

THERE WILL BE PENALTIES AND INTEREST

https://www.gov.uk/vat-returns/surcharges-and-penalties

https://www.gov.uk/vat-returns/interest-on-underpaid-or-overpaid-vat

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)

YES

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

YOU’D HAVE TO ALTER YOUR ACCOUNTS AND TAX RETURNS IN EACH YEAR IF MATERIAL AND MAYBE ONLY WITHIN THE FOUR YEAR LIMIT

e. for how many years can they retrospectively charge VAT?

FOR THE YEARS YOU SHOULD HAVE BEEN CHARGING VAT

f. can i get fined or go to jail for this if they decide i am committing fraud?

SEE THE ANSWER TO 2 B

IF THEY DECIDE YOU ARE COMMITTING FRAUD YOU COULD GO TO JAIL BUT IF YOU REPORT TO HMRC IT WOULD BE OBVIOUS YOU HAD MADE A MISTAKE

3) what should I do? I don’t want the sword of Damocles hanging over me for ever.

GO TO AN ACCOUNTANT AND EXPLAIN THE SITUATION

IF YOU SHOW YOU HAVE GOOD RECORDS YOU SHOULD BE ABLE TO GET A QUOTE OR AT LEAST A GOOD ESTIMATE

GIVEN THAT YOU CAN CLAIM BACK VAT FROM PARTS BOUGHT FROM COMPANY A AND CORPORATION TAX SHOULD BE REDUCED THEN I THINK YOU WILL FIND THE SITUATION IS NOT AS HORRENDEOUS AS YOU MAY FEAR

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By GrayMan
15th Jul 2015 22:35

Two companies one VAT registered

I believe that HMRC would be unlikely to see these as separate companies. For their rules it is the entity that runs the companies that would link them irrespective of the supplies they both provide.

This may not apply in the case in the case of two totally different businesses, for example, a husband & wife partnership operating a VAT registered cafe, where the husband also operated as a sole trader as a painter & decorator and was not VAT registered.

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By GrayMan
15th Jul 2015 22:57

2 companies

Peter has it in a nutshell. Yes there will be interest, and penalties, but the maximum penalty can only equal the interest. This will be partly mitigated, just by pointing this out to them. The penalty is further reduced by a number of other factors, co-operation etc. Once you have admitted the error,it can only be treated as error or mistake not fraud.. 

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16th Jul 2015 00:54

First of all i would like to point out i am not a professional just a student, however would like to point my opinion. 

It is clear that company B is opened in order to avoid the VAT. (I am not saying that you did that, however it looks like that) However i gues legal tax avoidance is not a crime. 

Questionable area is, both companies operate from the same WEB adress, sells the same products and company B buys goods from company A. I guess audit would look whether company B benefits from company A in term of VAT or any other. If company A charges VAT invoices from company B, and owner of both companies can prove that there is no benefitial interactions so i guess it might work out. If businesses can be proved as seperate entities, i guess HMRC would not be able to charge any fees no matter  whether they clearly see that another company is opened in order to avoid VAT or not. Am i right?

 

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16th Jul 2015 02:51

You are wrong

"I guess audit would look whether company B benefits from company A in term of VAT or any other. If company A charges VAT invoices from company B, and owner of both companies can prove that there is no benefitial interactions so i guess it might work out. If businesses can be proved as seperate entities, i guess HMRC would not be able to charge any fees no matter  whether they clearly see that another company is opened in order to avoid VAT or not. Am i right?"

Totally wrong.

You have to go by the rules rather than make it up.

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16th Jul 2015 07:13

Turnover
if both companies have similar turnover the haven't they both breached the VAT threshold anyway (regardless of whether they are separate businesses or not)

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16th Jul 2015 06:59

Agree with comments above

Splitting a company for the sole purpose of splitting business and private customers would probably be viewed as VAT evasion. The fact that you operate the same trade, serviced the type of customers of company B from company A originally, use the same logo, website, premises, suppliers and employees (ie. yourself) , is just giving HMRC more ammunition.

I think this would be seen as evasion, rather than avoidance, albeit not the worst case of evasion seen by HMRC. Your main defence would be that you took professional advice before splitting the business. This could well get you off the hook, but only if you can prove you were given duff advice, or your accountant admits his error. You must also act to correct the situation rather than carry on with the knowledge that the advice given was wrong.

An alternative would be to change the ownership & directorship of one company, but even then I feel you would be on dodgy ground as the companies are not operated separately, but are intermingled.

You were right to question the advice given originally, and this would go in your favour. You now have the opportunity to put it right.

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By mgandc
16th Jul 2015 07:58

Agree that there is a risk HMRC won't like it

I would agree that HMRC would certainly not like the arrangement. The point is whether you can rely on HMRC issuing a direction going forwards or whether they would be able to assess. 

As mentioned above, you don't mention the combined turnover of both businesses?  I am assuming that the combined amount is above the VAT threshold?

Clearly you are uncomfortable with the position, so my first thoughts would be that you should stop the arrangement going forwards.  At least that way the problem isn't getting any bigger.

The next step would be to get an Accountant who is experienced in these matters to review the position in an balanced approach. 

They can then advise of whether you should contact HMRC to disclose this (and can assist in he process) or whether you have a risk of challenge but have sufficient documentation to defend any challenge.

Clearly the advice will need paying for, but you will get advice which is from someone who will look at the facts without having an interest (ie the person who helped you set it up!)

Have you had a VAT visit in the last five years?

 

 

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16th Jul 2015 08:26

mgandc

 

combined total is above vat threshold

no i havent had a vat visit 

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16th Jul 2015 09:28

Doom Mongerers

mgandc wrote:

I would agree that HMRC would certainly not like the arrangement. The point is whether you can rely on HMRC issuing a direction going forwards or whether they would be able to assess. 

As mentioned above, you don't mention the combined turnover of both businesses?  I am assuming that the combined amount is above the VAT threshold?

Clearly you are uncomfortable with the position, so my first thoughts would be that you should stop the arrangement going forwards.  At least that way the problem isn't getting any bigger.

The next step would be to get an Accountant who is experienced in these matters to review the position in an balanced approach. 

They can then advise of whether you should contact HMRC to disclose this (and can assist in he process) or whether you have a risk of challenge but have sufficient documentation to defend any challenge.

Clearly the advice will need paying for, but you will get advice which is from someone who will look at the facts without having an interest (ie the person who helped you set it up!)

Have you had a VAT visit in the last five years?

 

 

I agree.  Stop now.  I have seen numerous examples of HMRC then deciding they WOULD have issued a direction but cannot now. Ie they accepted there were two businesses but they were loosely bound by operational, organisational and financial links (note all 3 need to be met). Just enough may have ben done to make them separate businesses. They are separate Ltd Co's.

I know the position could be dire. If it was up to some people here, the questioner would pop some handcuffs on and take himself off to the nearest Police Station. But if you are at the bottom of a hole, there's only one way to go!

Keep battling

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16th Jul 2015 09:14

Registering for VAT

"As mentioned above, you don't mention the combined turnover of both businesses?  I am assuming that the combined amount is above the VAT threshold?"

That's not important if one business has registered for VAT because then BOTH businesses should be registered.

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By BKD
28th Jul 2015 10:59

Clarification on one point

petersaxton wrote:

"As mentioned above, you don't mention the combined turnover of both businesses?  I am assuming that the combined amount is above the VAT threshold?"

That's not important if one business has registered for VAT because then BOTH businesses should be registered.

Not so, Peter - it is important. Anti-avoidance will not be invoked if registration is entirely voluntary (ie if total taxable turnover is below registration threshold). But in this case we're told that combined turnover is above the threshold.

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16th Jul 2015 10:06

Artificial Separation

If you google 'HMRC Statement of Practice 4 : Artificial Separation', you can find HMRC's policy, including 'What HMRC will consider to be artificial separation', ('Separate entities supply registered and unregistered customers' is No.1 on the list), and 'How the measures will apply' (existing vat registrations will be cancelled and an amalgamated business registration will be created instead).

HMRC comment that they will give a decision when faced with an actual situation, (as opposed to a proposed structure), so this might be a good route to try.

Your accountant can appeal if he is confident of his reasons for approving the split, but it looks like an error on his part.

You were not at fault, as you acted on professional advice, but now that you are aware of the facts, I think it would be vat evasion if you didn't address the situation.

 

 

 

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16th Jul 2015 10:09

They are separate Ltd Co's.

If that was all that was needed then it would be easy to avoid VAT registration.

It is true that HMRC can make some strange decisions but on the whole the answers above appear reasonable. Maybe the OP should write to HMRC setting out the facts and explain why they didn't register and see what HMRC suggest?

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16th Jul 2015 10:30

re: doom mongers

when you say "keep battling" do you mean that it might be ok? 

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16th Jul 2015 11:30
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16th Jul 2015 12:07

We can't wait

Hurry up!

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20th Jul 2015 09:09

Basil

Hi Basil, 

thanks for the novella! seriously, i really appreciate it.

there are some incorrect assumptions, mainly because i havent explained myself correctly, i will correct them as it may influence your conclusions :

 

"following the formation of Company A 10 years ago, for commercial customers, 5 years later you opened a separate company [Company B] for sales to domestic customers. In my submission, therefore, that second company was created for legitimate commercial reasons."

company A dealt with both domestic and commercial for the first 6 years, but not medium sized enterprises as i didnt have the skills.

As my skills improved i was able to take on larger corporate customers. i wanted to be able to seperate the domestic and commercial sides of the business. the commercial side is a lot more onsite work and late night work.  i wanted to change different rates for each type of customer (something i havent done yet but am wanting to do, 5 years really does fly)

 

*EDIT*

actually, i do effectively charge more per hour on company A. its the same rate but plus VAT, so for some customers, its 20% more expensive

*END EDIT*

and also charge different prices for  domestic and commercial  customers (which i do for some items). if i sell £5k's worth of stuff a commercial customer, they are sure as hell going to want a VAT receipt for it. a domestic customer would never need that piece of kit, nor the skills that go with it to look after it.

 

 

"given that I understand the annual sales of Company B are in the order of £42,000"

this is on average over the life of the company  - i turn a lot more now year on year, company B is turning apprx £70k. im at the point where i literally dont have the time to take on much more business, so im not concerned about breaching the vat threshold for company B. 

 

To answer why am i buying through one company and selling the kit to the other, its because its so much easier to do. if i need to stock say ten of item x, i dont know how many i will sell through each company.  if i had to hold (effectively ringfenced) stock for each company it would cost me a lot more money in stock, postage etc. it would be daft if i needed item x for company A, but didnt have any in stock, when there might be 10 of them sat on the shelf that actually belong to company B. the way i do it (and i am absolutely scrupulous about this) i every 3 months or so i generate a report of every single item company B has sold, then company A invoices (obviously a vat invoice), at cost, company B for them. im not getting an advantage in doing this, if i bought the same item through company B it would cost exactly the same. 

 

Regarding the VAT plan, No im not on a flat rate scheme.

something I dont understand from your post:  why would i deregister company A?

 

the thing that kills me is the fact that if i phone them up they are likely to see that as an admission of guilt and weight it accordingly. if i dont phone them up, i either stop what i am doing and hope they dont notice, or keep doing what i am doing and risk their possible wrath at some point in the future, which will either be a telling off and dont do it again or a proper bend over moment.

my accountant has phoned them up and outlined the scenario (not mentioning for who of course) and the best he could get out of them was that its a grey area, and they wouldnt be able to decide until they had investigated, if they ever did decide to investigate. they pointed him to the artificial seperation blurb, which both me and him seen before.  some of the things i do are on it, but mostly they arent. but theres no way of me objectively determining what it correct and what isnt. opinions are myriad. 

im happy to change logo's, build a different web site etc but isnt that really window dressing? i'll do it anyway, but it seems that doing so is aimed at deflection rather than the crux of the matter. As you can tell, im worried and confused.

Does any of the above change your opinion of the situation?

i really do appreciate your (and everyone elses) input

 

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16th Jul 2015 14:29

You have to love Fawlty's post, ending with 'in short'.
There was nothing short about that my friend.

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16th Jul 2015 15:51

Motivation

Perhaps, in the end, look to your own motivation as to why you split the companies.

If vat issues were part of your motivation, that might also be obvious to HMRC, take a more compliant view from now on.

If vat is irrelevant, and you want B to be separate even if it also needs to be registered in the future, then you could carry on, but you might have to argue your case with HMRC. 

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16th Jul 2015 18:43

What is the honest answer

as to why 2 Companies exist?

Can the OP give us a completely honest answer as to why there are 2 Companies?

Other than the glaringly obvious, i'm struggling to see why anyone would bother to go through the administrative heartache of having to run 2 separate Companies? 

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16th Jul 2015 19:00

Basil's points

I have researched further after reading Basil's points. Usually I agree with Basil. In this case he has made some valid points that show I was wrong but I can't agree with his general conclusions.

It does indeed appear that HMRC have to decide that the present situation is wrong. This seems to allow businesses to be set up to avoid being VAT registered and the worst that could happen is they would be forced to change in the future.

I think the OP is wrong to only issue inter-company invoices after periods as long as three months and without any set dates. I would do it at least for complete VAT quarters.

The OP has set out so many activities that makes it one business with only an artificial separation.

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16th Jul 2015 20:12

peter and ronaldo

ronaldo - i have laid the situation bare as it really is. im not on trial here, and the answers i have given are what the situation is. there would be little point in me going through all of this if i didnt state the actual situation.

 

peter - 

"I have researched further after reading Basil's points. Usually I agree with Basil. In this case he has made some valid points that show I was wrong but I can't agree with his general conclusions. It does indeed appear that HMRC have to decide that the present situation is wrong. This seems to allow businesses to be set up to avoid being VAT registered and the worst that could happen is they would be forced to change in the future."

 

could you share with me the links to the info that shows that Basil is correct please?

forgive me , also i can read your post 2 ways - do you mean

1)that the current legislation is wrong, and should be changed in order to prevent me from doing what i am doing

2) that what i am doing is not compliant with the current legislation

 

Thirdly, what difference would it make if the vat is paid in q1 or q2 as long as the vat is paid? it all come out in the wash. although it would be easy for me to do as you suggest, i dont understand what difference it would make. 

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16th Jul 2015 20:28

Answers

"could you share with me the links to the info that shows that Basil is correct please?"

This was referred to earlier in the thread.

https://www.gov.uk/government/publications/statement-of-practice-4-1983/...

"forgive me , also i can read your post 2 ways - do you mean

1)that the current legislation is wrong, and should be changed in order to prevent me from doing what i am doing

2) that what i am doing is not compliant with the current legislation"

1

"Thirdly, what difference would it make if the vat is paid in q1 or q2 as long as the vat is paid? it all come out in the wash. although it would be easy for me to do as you suggest, i dont understand what difference it would make."

No difference at all EXCEPT your VAT returns are wrong and there is a delay in payment.

If you think it's right then people could enter anything in any return and correct it in the next return. I am of the belief that you should make some effort to get your returns correct.

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16th Jul 2015 20:44

peter

hi peter, thanks for clarifying.

re VAT, ive never really thought about it, its not my area of expertise, but now you've educated me i will do it more frequently. will make it less of a chore anyway. 

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16th Jul 2015 20:48

basil

Hi Basil, 

Sorry, id completely forgotten to mention you in my last few posts. 

thankyou very much, and to everyone else who has taken the time to post here. 

Is anyone able to contradict Basils arguments? 

 

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16th Jul 2015 20:54

The link

somebodyelse wrote:

Hi Basil, 

Sorry, id completely forgotten to mention you in my last few posts. 

thankyou very much, and to everyone else who has taken the time to post here. 

Is anyone able to contradict Basils arguments? 

I think the link I quoted contradicts some of Basil's arguments about separation.

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16th Jul 2015 20:55

The overall gist of the link

seems to say: "Do what you want but if we find out we may get you to change in the future"

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16th Jul 2015 22:19

Here is where I disagree

"I think the link I quoted contradicts some of Basil's arguments about separation."

I think a lot of the facts indicate that HMRC would think that the two businesses were really one and artificially split solely to avoid VAT.

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16th Jul 2015 22:32

basil

hi basil, 

sorry, i said "I DONT " expect company B to reach the vat threshold. i simply dont have the hours in the day to increase the turnover. i am keeping a watch on the run rate though.

company C - i cant see how i could justifiably seperate the business for that, although clearly i know nothing about tax matters. company C would be seen as a bridge too far surely? 

If they cannot go back to the past and only deal with the future then thats fine. I agree with Peter - it seems a bit daft. But if those are the rules, then I'm happy to play by them.

Peter / Basil - doesnt the link Peter sent only contradict Basil on a few points, and not the required number of points they would need?

 

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16th Jul 2015 22:34

Basil for PM

Basil has, in his usual style, said what I was saying with a lot more detail. I think he is on the money - at the very worse, HMRC could issue a direction, but that leaves the past OK. I had a case where a business set up another business to sell second hand items to the public (non registered) with a VAT registered company, much larger, selling new items. Separate accounts, separate accountant, different bank account, recharges of rent etc from one to another. This is where it gets interesting...

As the unregistered company approached the threshold, if they had a big sale that would take them over the threshold, they sold the stock to the registered company at cost for them to sell and did Inter-company journals clearly saying it was to avoid VAT registration.  Bookkeeper told HMRC this too, all before I was involved. Cue much panic!

By the time of HMRC's, we had advised they amalgamate, maybe wrongly, but that's what we did.  HMRC asked a few questions, we explained about the areas they were independent, recharges etc. One year later, have not heard a thing from HMRC.  Had another case similar to this too recently.

I would repeat again, these are two separate companies at companies house. That must surely make it impossible for HMRC to argue that there is in fact only one company?

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17th Jul 2015 08:46

subject

thanks for clarifying.

 

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17th Jul 2015 10:14

Final comment

Final thought - agree with Basil, no need to disclose to HMRC. But if this is likely to keep you awake at night, you could consider stopping the arrangement now.  I believe you have done enough to ensure no retrospection.

HMRC are not reasonable chaps like us though and are not trained to consider the subtle differences between arrangements and so one would think, at the very least, they would ask questions, quite a lot of them.

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17th Jul 2015 10:34

the last word?

thanks wayne. im not worried about the future, only the past, so this will help me sleep at night. i may change my arrangements anyway, but at least i dont have to ringfence back VAT for ever now.

thankyou all so much.

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20th Jul 2015 11:21

Well the magic question HMRC asks you is

Why have you got 2 companies....it costs you twice as much with the accountant...??

 

And if the answer is...because it saves the VAT....do not pass go do not collect £200

 

If the answer is ( Which I dont think it is)  There are two separate businessess doing separate things because ....blah bah bah and its nothing to do with tax whatsoever as I have just demonstrated youa re on a stronger footng

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20th Jul 2015 11:33

Hmm

This plan usually works if you have a limited company (VAT registered) to serve VAT-registered customers and a sole trade (not VAT-registered) to serve the non VAT-registered customers.

Never seen it work well with two limited companies.

The two businesses need to be different enough so they don't look like you have fragmented the business to avoid VAT.

I have had numerous clients use this plan and have had no issues with HMRC ever (maybe I'm just lucky).

 

 

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20th Jul 2015 11:44

It also works with 2 partnerships. Mother & Son and Father & Son, per there own VAT manual.

http://www.hmrc.gov.uk/manuals/vatdsagmanual/vatdsag08350.htm

 

 

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By Briar
20th Jul 2015 16:25

Competition for customers

Could the argument for the non-VATregd company (B) selling to domestic customers be that there would be no (or significantly lower) sales if prices (labour element anyway) had to be 20% higher due to being VAT regd? Other non-VATregd competitors would take away the customers of the company if it had to be VAT regd.

That is, company B was formed to fulfil domestic customers' orders and compete on price with other suppliers. 

Price sensitivity of the market needs to considered.

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20th Jul 2015 16:37

I can think of plenty of arguments like that

and justify plenty of illegal activity.

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28th Jul 2015 10:37

well done

everyone for a balanced response. 

What is needed now is some simple changes to re-inforce what Basil says (I belive he is correct).  THe three tests have been mentioned and Basil has suggested some other changes.and ontop of this a different website.  Havinig different trading addresses will probally be the most effective but these I think this will be difficult.

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