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Gym owner & personal trainer artificial separation

Would like opinions if this is artificial separation for VAT or not.

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"John" trained to be a physical trainer around 5 years ago.  At that time he incorporated a company ABC Fitness Limited and started trading as a Personal Trainer through this company.  He is the sole owner/shareholder.

John then purchased an established gym around three years ago which trades through the limited company XYZ Gym Limited.  John is the sole owner/shareholder.  John runs the gym, purchases & maintains the equipment, pays the rent all through XYZ gym.  The gym has regular members that just use the gyms equipment.  These members pay XYZ Gym.

A number of self-employed personal trainers (PT) provide personal training at the gym, including John.  The PT's pay XYZ Gym Limited a fee to use the gym.  The PT's then charge their PT clients directly and keep all of the fee.  John also works on this basis even though he owns the gym.  

John also runs pysical training weekend retreats at various locations in the UK again via his PT company ABC Fitness Limited.  These retreats having nothing to do with the gym.  John advertises his PT and weekend retreats on facebook.  They do not mention the gym.

ABC Fitness Ltd and XYZ gym Ltd have seperate bank accounts, seperate UTR numbers etc.  

The gym doesn't rely on John's income from his personal training.  Should the gym close, John would carry on being a personal trainer, just using another location to train his clients.  Should John give up being a personal trainer, the gym would carry on trading as it does now.

Given the above information, do you feel that HMRC could look upon this as an artifical segregation of trades?  Neither company is near VAT registration limit, but if the turnover of the two companies are combined, they are just exceeding £85k.  My concern lies in that both companies are controlled by the same person and both companies trade in the fitness market.  I've read through HMRC's guidance, but would I'd be very greatful for your opinons.



Replies (7)

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By Les Howard
08th Apr 2019 16:32

My rule-of-thumb: if you have to ask that question then there is a risk of HMRC taking action under their disaggregation powers.
You chief counter-argument is that John started as a PT and then added the gym business later. This would prevent an argument that there is artificial separation. But it is not so good if HMRC argue that there is, in reality a single business.

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By Roland195
08th Apr 2019 16:43

I would not be hugely concerned given the stated facts. You can never have 100% certainty how HMRC will react to these situations but it does not seem there is much of a foothold for argument especially if the paperwork is maintained as you say and John pays the gym the market fee for use of the facility.

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By lionofludesch
08th Apr 2019 21:24

Doesn't look artificial to me.

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By atleastisoundknowledgable...
09th Apr 2019 08:27

I’d be happy with this set-up.

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By MissAccounting
09th Apr 2019 13:53

Id be more concerned when John starts to sell supplements through XYZ Supplements Limited.

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By Tom 7000
10th Apr 2019 12:42

I would say that was ok, its different enough.
But no commercial inter reliance or financial support or mixing stuff up. The only connection is john.

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10th Apr 2019 18:25

Just a passing thought, other than take a look at the websites (HMRC will)...

Does the gym have its own collection of gym bunnies. If it does, how is their income treated when they attend a class at XYZ Gym Ltd. Is it the Gym's income or PT Instructor's income?

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