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Level of turnover and artificial separation of bus

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Hi all

My question is (assuming that all correct boxes are checked in ensuring two seperate legal entities) does the level of turnover of a business influcence whether artificial separation of business has taken place with regards to VAT?

Two examples:

1 - a company reaches £45,000 in turnover which is £40,000 for domestic carpet fitting and £5,000 for commercial carpet fitting. The sole director decides that he would like to operate 2 limited companies (domestic carpets ltd and commercial carpets ltd).

Is the fact that the turnover is down at £45k seen as less like artificial separation of business than if the turnover was at £85k at the point at which the split is made?

 

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RLI
By lionofludesch
16th Oct 2020 16:15

Why do you think that a group (I use the term loosely, rather than in its Corporation Tax sense) of companies with a combined turnover of £45,000 has a VAT problem ?

More information needed.

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chips_at_mattersey
By Les Howard
16th Oct 2020 16:19

Artificial separation is separation which is artificial, irrespective of turnover.
One test is whether the arrangement results in the avoidance of VAT. In your case that does not apply since the aggregate turnover is less than £85k. Once the aggregate turnover exceeds £85k, HMRC can intervene and aggregate for VAT purposes. They cannot take action whilst the turnover is less than £85k unless they thought there was some other aspect which resulted in VAT avoidance.

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ALISK
By atleastisoundknowledgable...
16th Oct 2020 16:29

I presume the point is that commercial co will vat register but he doesn’t want to charge his domestic customers vat.

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Replying to atleastisoundknowledgable...:
RLI
By lionofludesch
16th Oct 2020 16:36

If that's the plan, the problem is, how will the businesses be kept separate ?

Separate suppliers accounts ? Separate premises ? Separate staff ? Separate motor vehicles ? It's a lot of faff to save a few quid in VAT. £5000 sales is definitely not enough.

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Replying to lionofludesch:
ALISK
By atleastisoundknowledgable...
16th Oct 2020 16:44

You never know, accountancy fees may be astronomical.

I’m assuming that there’s some hefty input vat from somewhere that’s trying to be claimed.

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Replying to atleastisoundknowledgable...:
RLI
By lionofludesch
16th Oct 2020 16:56

atleastisoundknowledgable... wrote:

You never know, accountancy fees may be astronomical.

I’m assuming that there’s some hefty input vat from somewhere that’s trying to be claimed.

Accountancy fees ? You reckon there'll be any ?

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Replying to lionofludesch:
ALISK
By atleastisoundknowledgable...
16th Oct 2020 21:09

lionofludesch wrote:

atleastisoundknowledgable... wrote:

You never know, accountancy fees may be astronomical.

I’m assuming that there’s some hefty input vat from somewhere that’s trying to be claimed.

Accountancy fees ? You reckon there'll be any ?

Fair point. I assumed the OP was their accountant.

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Replying to lionofludesch:
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By Paul Crowley
16th Oct 2020 18:35

Definitely the plan
Problem is exactly what you say
More important of course is that Op owes MDTP a pint or two

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By JD
16th Oct 2020 16:33

Does that turnover include all his ''cash'' sales.....

Turnover at that level, but talk already of artificial separation perhaps raises more questions than have been asked.

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