A client owns two companies which are run seperately. One is VAT registered and has joined the Flat rate scheme. He is thinking of registering the other for VAT in order to be able to claim back vat. As the Companies are under his common ownership this means that they would be eligible to join a VAT group and so would be ineligible to be part of the flat rate scheme. Is this correct?
The companies run different busienss (one is an estate agency and the other does property investment) and are run from two seperate offices. Is there anyway we could argue that the companies are run seperately and have no economic or organisational links to each other and hence they are not connected?
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Take care
I agree that the common ownership would make the two companies eligible for a VAT Group, hence they cannot be in the FRS (VAT Regulations 1995, reg. 55L).
This restriction is based on the requirements relating to "control" for Group registration purposes, which are strictly defined in VATA 1994 s.43A. That is how the UK legislation applies the "economic or organisational links" criteria which stems from the EC VAT Directive.
So your client should take care because the application form for the FRS includes the statement "I am eligible for the Flat rate Scheme." It might have got registered incorrectly.
Flat rate scheme and groups
I think the registration is ok as only one company has been registered for VAT. The other is not registered so there cannot be a VAT group until both companies are VAT registered.