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Ensuring businesses are separate for VAT purposes

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My client is buying an established beauty salon, and will make it a limited company. 
 

They plan to buy more over time and run each as a separate limited company. Their end goal is to own several salons, with different names, different people working in them (as rent a chair or employees) in a variety of towns in their county. 
 

Each business will be registered separately and have its own tax return submitted. Each will have its own bank account. They will be financially independent from one another, financed through director's loans until they self-sustain. They will not share equipment, they will not share office space and they will not be advertised or grouped together. 
 

There will be zero common employees. My client will be the director for each.
 

Could the director work in each salon to help set up, adding revenue to the limited company for the relevant salon?

Please ask if I haven't made anything clear.

 

It appears to me that this should be possible, but as separation is not black and white, it's worth canvassing opinions. 

 

Replies (17)

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By SXGuy
13th Oct 2021 14:29

Can the director work in each salon, yes.

Does the above scenario seperate all the businesses. Probably not. That's just my guess.

Let me put it this way, the same director is in charge of multiple companies all carrying out the same trade, which part is not connected?

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Replying to SXGuy:
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By MarathonMan
13th Oct 2021 14:55

When you put it that way, I don't know. Connectedness wasn't a part of the criteria I've found, but it makes perfect sense.

What would be the most tax efficient sketch I can provide for my client? Is there anything better than add each new business to the existing limited company and pay VAT once turnover reaches the threshold?

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Replying to MarathonMan:
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By David Ex
13th Oct 2021 14:59

MarathonMan wrote:

When you put it that way, I don't know. Connectedness wasn't a part of the criteria I've found, but it makes perfect sense.

What would be the most tax efficient sketch I can provide for my client? Is there anything better than add each new business to the existing limited company and pay VAT once turnover reaches the threshold?

How many IDs do you have for this site?

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Replying to David Ex:
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By Paul Crowley
13th Oct 2021 15:38

Second person in less than a week to respond using the other ID

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Replying to MarathonMan:
Psycho
By Wilson Philips
13th Oct 2021 15:02

I don't know about splitting businesses, but if you are the OP you appear to have a split personality ;¬)

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Replying to Wilson Philips:
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By Hugo Fair
13th Oct 2021 16:29

And have chosen as an alter ego a nomenclature that indicates he/she is in it for the long haul ... the previous post have reached just short of 200 pointless/insulting responses before being censored by the mods.
As someone (Mary Poppins?) said, "It's not kind to encourage them"!

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Replying to Hugo Fair:
Psycho
By Wilson Philips
13th Oct 2021 16:38

My issue is not so much about having multiple IDs, but the practice of pretending to be an agent when he is clearly anything but. But he's been found out now ...

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By David Ex
13th Oct 2021 15:03

Wow!! And only a few short years ago you were thinking of jacking in the eBay trading for hairdressing. What a coincidence.

Interesting that you eventually became a practising accountant.

https://www.accountingweb.co.uk/any-answers/can-i-run-these-two-business...

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Jason Croke
By Jason Croke
13th Oct 2021 15:04

HMRC will attack where there are financial, economic and organisational links.

There is no right answer, you do what you think is enough to create distance in all three of the above headings and hope you've done enough.

If you want certainty, engage a professional and pay for peace of mind.

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By David Ex
13th Oct 2021 15:13

If you think doing your own tax planning is a sensible idea, ask yourself when you last saw someone making a good job of cutting their own hair.

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By MarathonMan
13th Oct 2021 15:27

I [***] up the ID thing here. I am engaging two tax professionals here, I met one yesterday who just wasn't sure, and I'm meeting the other, who has been my accountant for 18 months, in 20 minutes. One for an existing salon, a 'garage accountant' as the other put it. The other, who heads up a firm. The problem is this: no one seems to be sure, and the consequences of getting it wrong are enormous either way. It's a very frustrating position. To me, separation makes sense. It's buying, managing and running separate businesses. No customer will ever frequent more than one salon. But as I say, the consequences of being wrong are high either way. Either the business is stifled by unnecessary tax or it runs the risk of being found on the wrong side 20 years from now and owing a [***] ton. Probably one HMRC guy would see it one way and the other another way. It's trying to find the best way to begin this journey. Perhaps many brains are better than two?

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Replying to MarathonMan:
By ireallyshouldknowthisbut
13th Oct 2021 16:22

You are looking for certainty in an uncertain world

All any decent tax professional will be able to do is point out both sides of the argument, and if you are trying to keep these all separate for VAT, what you need to do to make it so, and what might trip you up.

I am not a VAT specialist (and you really want one here) but I would say you are going to struggle with this one and it might be a lot simpler to set up as one business rather than tying yourself in knots to avoid some VAT and ending up having 101 sets of accounts to file and it being much harder to do the bookkeeping etc. Having a brand being developed with shared overheads, advertising etc has a lot to be said for it economically and being activity prevented from doing this to avoid VAT issues may well be the tax tail wagging the business dog.

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Replying to ireallyshouldknowthisbut:
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By Hugo Fair
13th Oct 2021 16:38

A much better expressed version of my "are you sure that you've asked the right question?" with which I was tempted to respond.
I know we're meant to stick to the question(s) asked, but OP has a history of wishing to avoid VAT - which may make sense as an eBay trader, but less so in the realm of hairdressing salons - where supplies (turnover) of less than £85k pa seem to me to be an unnecessary cap on business.

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Replying to Hugo Fair:
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By Pirate0
13th Oct 2021 17:05

Nah, not really. Most hairdressers are independents, so VAT means unusually low margins or uncompetitive rates. It’s a serious barrier to growth.

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Replying to ireallyshouldknowthisbut:
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By Pirate0
13th Oct 2021 17:03

Thanks. That seems the way to go. The consensus appears to be one or two as separate, okay, fine. Twenty looks dodgy as.

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By Paul Crowley
13th Oct 2021 16:10

Really enjoyed that old closed thread
I suspect you may have problems keeping an accountant, based on your comments so probably a good idea to dump the garage accountant and get a bigger firm with lots of staff.
The problem with this website is that most active responders are not from the big firms.
Experts aplenty though, Basil for instance, and Tax dragon (currently MIA)
For VAT it is Jason
See above

Seriously though
Get the first one running profitably before worrying about the second.
How much staff and rent costs are viable at income below £85,000
Your biggest problem is much more likely to be messing up the chair rent rules and arguing about what exactly a month is

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By David Gordon FCCA
20th Oct 2021 12:50

This scheme is so old it should be pensioned off.

If the same person(s) control each of the companies, they are aggregated for VAT limit purposes.
For tax purposes might just as well run one company with branches.

For business consideration it might be better keeping salons separate so that if one has problems it is insulated from the others. Also, small business rates relief and so on.

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