Hi
Company A is vat registered and complete returns accordingley. Company B is wholly owned by Company A. Company B had vatable business income of £50k per annum but is not themselves vat registered - they choose to not register as the £50k is charged to the pulic so and they don't want to have to add 20% on to the price. There are no inter group charges betweeen the two.
Am I correct that company A & B do NOT have to form a vat group?
If so - what would stop Company A from palming off each sales activity into new subsidiaries to prevent having to add 20% on to their sales? i.e constantly remaining beneath the compulsory registration threshold by creating more and more subsidiaries. (to note 80% of costs are salaries so very little input tax to reclaim)
I had in mind that they would have to group together for the very reason of avoiding my second point but my reading suggests this is not the case.
thanks
Replies (9)
Please login or register to join the discussion.
They don't have to be in a VAT group.
There *may* be some antiavoidance rules about forming multiple subsidiaries to avoid VAT registration, but personally the best block to doing this is that fact you'll end up with A MILLION companies to prepare accounts for (okay, I jest, but even a £8m turnover business (ie, SMALL) is going to need 100 companies to keep them all below the VAT threshold).
That's 100 accounting charges, and £1,300 a year alone in confirmation statements.
I wouldn't say that there *may* be some anti-avoidance rules to catch this scenario. There *are* such rules. Where there is an element of doubt is whether HMRC could successfully apply them, which would depend on the precise facts and circumstances.
When you say that there are no ontra-group charges, are you saying that there will not be any intra-group supplies?
Will the staff be employed only by the companies for which they will perform duties?
I'll bet the intention is to just have one company employing all the staff, but then have those staff working fluidly between the companies.
I can confirm that there are provisions that will deem there to be a supply and fixing the amount of the consideration for that supply.
Schedule 1, 1A (2) and 2 (2) are the main part of the law, and the HMRC Guidance is here (although I've not looked through to see how much is 'redacted to protect the public purse') https://www.gov.uk/hmrc-internal-manuals/vat-single-entity-and-disaggreg...
All depends whether or not HMRC deem what is called a "Connected Activity".
Many smaller business would dearly love to split their business activity in two or more! particularly so where, for example, a core part of their is supplies to non-VAT registered traders and more critically, the public. Obviously, a heating engineer could depress its revenue by having a subsidiary business to supply all major parts and components, such as new boilers etc. And then reduce their charge out rate on labour by 20%, overnight!
Not allowed; a Connected Activity.
Lots to think about here. Disaggregation. Non primary purpose income and the trading subsidiary. Gift aid of profits. Partial exemption and non business. There are many reasons why you would want to form a vat group. ....