Domestic cleaning business

Separate a company for each

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Hi all

i have a client who runs a small domestic cleaning company, only approx £45k in turnover (ie not to close to the vat threshold).

they would like to branch out into commercial cleaning as well, but want to run that business under a seperate limited company as they see the company as a seperate entity in its own right which may attract other shareholders and directors in the future).

my question is that provided that the new company has its own bank account, fixed assets, trade accounts etc etc is it likely to raise eyebrows from HMRC under the spotlight of 'artificial separation of business' for vat purposes?

my feeling would be that it would, but wanted to ask others opinion

Replies (4)

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By ireallyshouldknowthisbut
02nd Oct 2020 11:26

I assume you are a new poster given you have gone "anon" (which usually means you will get a hard time, its a bad plan, just use a name that isn't yours and you cant be identified)

The best way to get help on the forum is to ask narrow points, so if you look at the guidance and then explain what you think would fall in your clients favour, which are in HMRC's favour and which you are not sure about then you will get the most out of asking questions on here.

I hope that helps.

but in short, its always going to be a point of risk.

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By graemeban123
02nd Oct 2020 12:04

There should not be a problem with the proposed set up if run properly.

However other areas definitely to make sure are kept separate, on top of the ones you have mentioned are staff, both cleaning and administrative and other overheads such as office costs.

Make sure if the same cleaning staff are working on both the domestic and commercial work they are paid in full by the correct Company, ensuring timesheets, etc are completed for each separate business and they are paid by that Company. Staff might not want to be paid by two separate Companies for work they will consider all the same but if you don't get this right their objective will fall at the first hurdle if HMRC look into their affairs for some reason.

Also if they do their own bookkeeping / payroll and plan to use the same individual to do both Companies then their time and expenses such as for software costs should be allocated correctly. The easiest way for this is one Company just Charges the other for the work the individual does.

Would be best for the Company doing the domestic work to employ that individual and fee the commercial business. This is as the domestic business is under the VAT threshold and sounds like this won't change therefore there is no VAT on it's charges. It would potentially be best to have the Company doing the commercial work VAT registered as the likelihood most of their clients will be and hopefully would reach the turnover level their selves to have to be registered. So if they were to charge the domestic side for doing the admin work they would be unable to reclaim the VAT back.

Sorry for going into detail on something you probably had potentially already thought about, just have had the same chat with clients in the past who wished to not split everything properly due to the "hassle" which would have meant on any HMRC inspection they would easily have fallen into the 'artificial separation' category and we would have had no way to argue if HMRC had made that decision.

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By Tax Dragon
02nd Oct 2020 12:45

Just a muse (probably betraying my inexperience of dealing with this... oh, there goes the "probably"!)...

if businesses do get undisaggregated for VAT, can it have any NIC consequence?

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RLI
By lionofludesch
02nd Oct 2020 13:44

Is this the now fashionable singular "they" or are there multiple folk involved here ?

Is turnover likely to exceed £85000 from the combined operations ?

You'll be grand provided you can convince HMRC that the reason for the split is unconnected with VAT avoidance. Easier said than done ....

Can you guarantee that each company will exclusively use its own assets ? If the hoover breaks at ComClean, will they just borrow DomClean's hoover ?

Will the staff be different ?

Will ownership be different ?

Plus 101 other questions.......

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