Hi everyone
I have a client who has set up a company to run a Furnished Holiday Let. He wants to purchase another property as a FHL in the same company, only it will push the business over the VAT threshold which is far from ideal.
It's my understanding that there would have to be sound reasoning to set up a new company for each FHL; which would inturn avoid the requirement to become VAT registered. Obviously if the ownership of the company varies then that would be one reason. I was wondering however that if the ownership was the same for both companies, because each property is mortgaged that it makes sense to keep the assets legally separated? Or am I on dodgy ground?
Thanks in advance
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Replies (9)
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I'm not sure that I've followed everything you say, but if your objective is to avoid the need to register for VAT ... then you need to understand the concepts of connected businesses and of disaggregation (artificial separation).
Are you an Accountant or the business owner? I ask because from your post it seems the client wants to buy another FHL in the same company, but you want them to artificially split their trade to avoid VAT and you're trying to find a plausible explanation for splitting. If you are an Accountant, appreciate you may be trying to save your client from paying VAT, but then if you are advising on what could be construed as tax avoidance, then you'll be on the hook when it goes wrong.
You need to read this. In essence, everything has to be arms length and it is harder than it sounds. HMRC must prove all three links - financial, economic and organisational. Section 5 and 6 are the important sections.
https://www.gov.uk/government/publications/statement-of-practice-4-1983/...
It's not impossible to achieve, but based on the detail in your post, you'll struggle to separate the companies. The FHL's have mortgages so we have financial links, presumably the FHL's will be advertised on the same website/same telephone and same customer type, so we have economic links and even if you change the mix of shareholders there will still be, presumably, a shareholder in common to all of the companies, so we have organisational links.
If you're going to do this, there is always a risk HMRC will attack it, your only defence is do this with precision and care and maintain that precision and care at all times so that when HMRC attempt to attack, they can't get over the wall of precise structure and cross charges, etc.
These things fall down on the tiniest details like the property owner has a van which he uses to visit the properties to do repairs and HMRC twigs that the van is owned by company A but is used to repair properties in Company B with no cross recharges for the van, labour or you could have something like a customer books a property but at last minute you can't supply the house due to storm damage and so you offer them the other property (in the other company) and instantly you create links you don't want to.
If you are an Accountant, appreciate you may be trying to save your client from paying VAT
Pedantry, I know, but it's not the client "paying" VAT. The client would simply be collecting VAT for HMRC and handing it over.
Which is why, of course, those who are keen to avoid VAT registration are driven not by a desire to avoid 'paying' VAT - but to avoid 'charging' VAT (making them less competitive in a price-sensitive market).
I know you and Jason obviously know that, but I can never ignore a call to the arms of pedantry (especially on the back of a cheap but accurate shot at HMRC)!
I kneel before my pedantry masters and appeal to them for mercy.
Yes, I of course meant the client wanted to avoid "charging" VAT :(
Make sure they claim any capital allowances available on "Plant & Machinery Fixtures" which may stop them worrying about their VAT so much as they are paying far less CT on their profits.
Thanks everyone. Re-reading my question, I clearly wrote it late at night!
The client is naturally setting up new companies to manage the different investors; albeit you can argue the control remains with the same one/two people.
All the properties are managed by the key client via an agency that they jointly own with a separate person to the investments. The agency has other properties on the books and the transactions are at arms length.
Obviously I do not want them to register for VAT if they can avoid it. I'm going to pass this on to someone more VAT qualified me thinks.
If you know of anyone, do ping their details.
Thanks