Artificial separation?

Artificial separation?

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Hi all,

I've got a client who sells musical instuments & also teaches. He has a company but wants to split the teaching income out & put that through a sole trader. Would this class as artificial separation? Splitting the two would keep the company under the VAT threshold. Or am I worrying unnecessarily?

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By Midlands Accountant
18th Dec 2012 14:24

700/1 s13.5
Artificial separation is defined in HMRC Reference:Notice 700/1 (Apr 2010)  s13.5.  I would suggest that the case you outline IS artificial separation.

 

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By mrme89
18th Dec 2012 16:27

Exempt?

Is the teaching income not vat exempt?

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By Cloudcounter
18th Dec 2012 16:50

I think no artificial separation

The teaching income is only VAT exempt if provided by an individual, so if provided via the company it would be standard rate.

Although music is a common factor, I think that the two activities are sufficiently different that they would not be regarded as artificial separation.  It is not common for music shops to offer tuition, or for music tutors to sell instruments.

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By mrme89
18th Dec 2012 17:08

@Cloudcounter – the OP

@Cloudcounter – the OP specifies “but wants to split the teaching income out & put that through a sole trader”. So the intention is for the teaching income to be as a soletrader so my point is valid.

 

I do agree though that they are sufficiently different to not be regarded as artificial separation.

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By Rachael White
18th Dec 2012 17:16

Hello, 

Hello, 

There's been an article on this subject on AccountingWEB in the past few months - perhaps that can help you. 

Best of luck with finding an answer!

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By George Attazder
18th Dec 2012 17:40

Where...

... would the teaching take place? And are you saying that it's currently being provided by the company?

If the answer to the second question is "yes" and the answer to the first question is "at the music shop", I beg to differ from the other learned respondents.

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By Sandnickel
19th Dec 2012 09:25

Thanks

for all your comments. After posting I had convinced myself they were different enough trades. I do need to ensure the teaching is not in the shop though, thanks George. The thing that got me on this thread is that the client opened a bank account in the company name for the sole trader so I have an asset in the company accounts which technically belongs to the sole trade. Does this make any difference to the question? I am considering posting the transactions through DLA.

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Replying to nogammonsinanundoubledgame:
Euan's picture
By Euan MacLennan
19th Dec 2012 10:36

Eh?

Sandnickel wrote:

The thing that got me on this thread is that the client opened a bank account in the company name for the sole trader so I have an asset in the company accounts which technically belongs to the sole trade. Does this make any difference to the question? I am considering posting the transactions through DLA.

If this is what concerned you, why didn't you put it in your original question?

Are you now saying that instead of "wants to split the teaching income out & put that through a sole trader", he has already done it?  And that cheques payable to him as an individual for teaching are being accepted by the bank for payment into an account in the company's name?  Or are the cheques made payable to the company?

If the bank account is in the company name, I think you have no alternative but to treat the receipts into the account as company income.

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By Sandnickel
19th Dec 2012 11:47

Euan

Sorry I wasn't clear - I posted the original question at the beginning of preparation. I was told that the client was intending to start teaching and was actively searching for pupils. I assumed therefore it would be after the period I was preparing. It transpires this is not the case. There is teaching income in the period and it was banked in an account that is in the company name albeit Company X t/a Sole Trade. I'm not sure I agree that it would be company income, the client has mistakenly opened the account in the company name. Surely, I can treat this as DLA or even an inter business creditor? 

The original question was the VAT - further information was discovered along the way.

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