2 companies, one VAT reg, one not, different trade

Same owner, same locations, different trades.

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I am 100% owner and sole director of two Limited companies, one VAT registered, one not. I’d like to be confident I’m not doing something wrong either now or in the future.

Company A:

Formed in mid-2016 and rents an office in southeast UK which it sub-rents under Licence to Occupy to startups. Turnover is £130k, approx £60k is room hire or licence to occupy (confirmed by HMRC as VAT exempt) so the remaining income is under the £85k threshold. That income is made up of hot desk tenants who share space in the office. Everyone is welcome to help themselves to tea and coffee (which is mainly paid for by us, but people sharing the office buy shared refreshments too) and can print on our printer. 

This company started running training for other companies. This made a loss initially but was worth pursuing, so we started a new company, company B, to continue this line of business.

Company B:

Registered min 2018. The company leases a whole building in the West Midlands to use as a base and training centre. This company provides training and consultancy services to public bodies and other business incubators. This company VAT registered from end 2018 and charges VAT on its services. I'm the main person delivering the work, but in future we will subcontract other training providers as well.

Company A rents some space (under a written contract) in the building which Company B has its lease on and does the same activity as it does in the southeast UK - ie providing office space.

Company B provides some services in the southeast UK as well as the West Midlands, so they essentially share premises.

 

Company A provides space for many different types of organisation (startups / SME’s / non-profits / VAT reg and non VAT reg). 

Company B generally has a different set of customers.

 

Company A is lending company B money at the moment as B is new and has little income (e.g. £10k but rising), but B has large outgoings.

 

  1. Could HMRC see the two companies as one?
  2. If they did, what would happen?
  3. In the future, can I justify opening a 3rd company (“C”) to rent the space in the West Midlands from B, and do the same type of business as A but wholly limited to the West Midlands. This would mean the VATable turnover of A and C would remain below £85k so would prevent the need to register for VAT, but the reason for doing it would be to separate the risk as we could then operate each letting business independently, one on Southeast one in the West Midlands. Would HMRC be likely to say they are 1 company? Currently A only has 5 hot desk customers in West Midlands so trade is very small (£500pcm), and could be taken up by the new company C is we go ahead with that.

Replies (3)

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By Accountant A
27th Dec 2018 18:55

If you want to be "confident" about your tax affairs, the obvious answer is to appoint an accountant. If you struggle with this stuff, presumably there are other areas of your tax and finances that you also struggle with - or worse still - think you are doing right but aren't.

As for asking for tax planning advice ("company C") for free, that's taking the you-know-what. If it's of financial significance to you, pay for some advice. The benefit of paid advice, compared to the opinions of internet randoms some of whom don't kn0w their apples from their pears, is that if it's wrong, you can sue.

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By Moonbeam
27th Dec 2018 19:46

If you can't ask this question of your current accountant (you do have one, don't you?) then you should look around for someone you can trust to advise you. You've given a wealth of detail, but a decent accountant would want to ask a lot more questions before advising you, and that's why we charge fees. You seriously can't expect a reliable answer just on what you've posted.

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By carnmores
28th Dec 2018 08:08

generally speaking it is quite possible to keep them separate but in this case you stated

'This company started running training for other companies. This made a loss initially but was worth pursuing, so we started a new company, company B, to continue this line of business'

on those grounds alone i would say both companies should be registered as should a third one .

could HMRC see as one YES, though it is possible that if they did and wanted to correct the disaggregation that it would not be backdated though recently they tend to try more so a voluntary registration might be better.

if you want to make things easier for you you would need to change the ownership percentages of the companies.

if you dont want to ask your accountant or already have and want a second opinion

http://www.claritaxbooks.com/vat-registration~16

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