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Can you operate as a partner and self employed

Can you operate as a partner and self employed in the same business

I have a new client who is in partnership in a hair salon. But also wants her income from the salon to go through on a self employed basis and cliam she is renting a chair from the salon. Is this legal to do. Her previous accountant did this for her and it obviously keeps them under the VAT threshold (businress would fold if went into VAT). I understand that they are different legal entity but am concerned about the legalalities of this. Any one any ideas.

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22nd Aug 2017 10:47

It's legal to do in that she can rent the chair from the salon and separate the income out and report them as separate entities on her tax return if she wants. The two important points however are that the chair rent is probably not a deductible expense as she's paying it to herself and also that this does not mean the two businesses are separate for VAT purposes so does not stop her from hitting the VAT threshold.

These two facts should be enough to make it clear it's a stupid idea.

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22nd Aug 2017 11:21

I'm not sure the chair rent makes a lot of difference. Her share of it is neither income of one business nor an expense of the other - which might actually help her keeping under the turnover threshold.

However, this is clearly a connected business and you'd have a lot of trouble defending this against any VAT assertion. Chair rentals can work if the contract's right but here she has a role in the management of both businesses - which is not usually the case.

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By B_Wood
22nd Aug 2017 11:30

This was my initial thought. Thank you for clarification

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22nd Aug 2017 11:48

Alternate solution (if business would fold if VAT registered). Open shorter hours. By doing less business they can keep below the VAT threshold in a legitimate way. A hairdresser client of ours did just that for similar reasons.

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22nd Aug 2017 11:49

The FTT found in the case below that the appellants had conducted their own sole financial trades, and that they had participated in a separate trade in partnership. There were therefore two trades and not just one trade with two computations.

http://financeandtax.decisions.tribunals.gov.uk//judgmentfiles/j9092/TC0...

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to Justin Bryant
22nd Aug 2017 14:08

Justin Bryant wrote:

The FTT found in the case below that the appellants had conducted their own sole financial trades, and that they had participated in a separate trade in partnership. There were therefore two trades and not just one trade with two computations.

http://financeandtax.decisions.tribunals.gov.uk//judgmentfiles/j9092/TC0...

Definitely highly relevant to this situation in which a hairdresser is operating as a hairdresser in the premises from which she conducts a separate hairdressing partnership.

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to Duggimon
22nd Aug 2017 14:18

What's the difference in principle? They are both trades aren't they?

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to Justin Bryant
22nd Aug 2017 14:42

And if I was a partner in an accountancy firm and a builder on my own then they'd both be trades and could be treated separately on my tax return.

The difference is that being a hairdresser in your own hairdressing salon but calling it a separate trade is clearly an artificial separation.

Your example clears up exactly nothing since the trades in the case aren't in any way congruent to the ones in the question.

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to Duggimon
22nd Aug 2017 15:47

If you read the above case, there were no separate trades (e.g. like builder and accountant) of the appellants, so it's analogous. If the chair was in a different shop to normal etc. it would obviously help.

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to Justin Bryant
22nd Aug 2017 16:33

Justin Bryant wrote:

If you read the above case, there were no separate trades (e.g. like builder and accountant) of the appellants, so it's analogous. If the chair was in a different shop to normal etc. it would obviously help.

Whilst I admit I haven't waded through the entire 40 pages, what I did read indicated there were two distinct trades. Admittedly they seem to be more directly related (more builder and architect than builder and accountant) but what they weren't was builder and builder.

So it's not analogous. Perhaps you could explain why you think the two trades in your case were actually identical. You're the one making the claim they are identical trades run by the same people but still got treated separately. If that were true then HMRC would never be able to claim artificial separation. Simply dumping a large document in the forum that no-one here has time to read is not a sound argument.

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to stepurhan
22nd Aug 2017 16:54

Do we know why the sole trade and partnership are considered separate ?

What's the partnership trade ? Hairdressing by people other than the chair-renter ?

A bit of detail would help provide a sensible reply.

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22nd Aug 2017 14:56

The failing is often where the trader doesn't treat the two businesses as separate - except for the VAT return.

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