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Query regarding 2nd Business and VAT

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Hi there

I hope someone can help with my question.

My husband and I run a business together as a partnership.  We are classed as self employed as the business isn't Limited.  We turn over more than £85k pa and have been VAT registered for a number of years.

I am now in the process of setting up a 2nd business, which again I will be running with my husband and again won't be Limited.  This one isn't linked to the original business at all, it will have a different name, logo, website etc.  The only thing the 2 businesses will share is the premises we run them from.

My question is, can we legally run the 2nd business as a non-VAT registered business?  Obviously our other businss turnsover more than £85k pa so has to be registered, however the new business hasn't started trading so hasn't turned over anything at this point and it will be some time before we hit the threshold, if at all.

We have been advised by an accountant that due to the businesses not being linked at all (FYI one sells wedding supplies and the new one will be selling confectionary) that this will be ok.  However I have read conflicting advice online so I wanted to get another opinion to put my mind at ease!

Replies (24)

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chips_at_mattersey
By Les Howard
20th Nov 2019 15:41

If the second business is operated by the same partnership, then the existing VAT registration will apply to both. You will have to charge VAT immediately.
You may decide to set up, for example, a limited company, to operate the second business. This would not be registered for VAT unless it reached the turnover threshold.
There are other issues to address; I would advise having separate websites. Since the two businesses share premises you should have a simple rental agreement or similar. And. your first business probably cannot use the VAT Flat Rate Scheme.
Whichever advice you decide to follow, make sure you have it in writing!

Thanks (2)
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By Wanderer
20th Nov 2019 15:45

LHM wrote:

We have been advised by an accountant that due to the businesses not being linked at all (FYI one sells wedding supplies and the new one will be selling confectionary) that this will be ok. 

Based on the structure of the businesses you have described this advice is incorrect.
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By memyself-eye
20th Nov 2019 15:54

There could be a conflict in that they both operate from the same premise and therefore 'share' the costs?
You would need to be sure the overheads (rent/rates/heat/light etc) of the new business are kept separate from and accounted for separately from those of the existing so that one does not 'subsidise' the other.

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Replying to memyself-eye:
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By The Dullard
20th Nov 2019 16:13

The disaggregation rules aren't in point. It's the same VAT entity (H&W partnership) running both businesses, so business 2 is already VAT registered.

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Replying to The Dullard:
RLI
By lionofludesch
20th Nov 2019 16:30

The Dullard wrote:

The disaggregation rules aren't in point. It's the same VAT entity (H&W partnership) running both businesses, so business 2 is already VAT registered.

I see what you're saying but the OP is only preparing to trade in the second business as yet.

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RLI
By lionofludesch
20th Nov 2019 16:07

Sharing the premises could prompt HMRC to assert that the businesses are being run as a single entity.

Is there anything else they share ?

If you're not keen to accept a VAT charge on the new business, visit an accountant. There may be something you can do, there may not. Much depends on how effectively you can keep the businesses separate. A lot of traders say they keep the businesses separate but, when push comes to shove, are a bit lazy about it.

Here's the key question - "Would Business A be doing this if Business B was owned by someone I didn't know ?"

If the answer's "no", you're in trouble.

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Replying to lionofludesch:
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By The Dullard
20th Nov 2019 16:14

Missed your point. My bad! Ignore me.

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Quack
By Constantly Confused
21st Nov 2019 08:07

Problem 1 is you only have one entity (a H&W partnership, albeit running two businesses) so the turnover for both is the turnover for the entity. Do you have a friend/relative who would like to help you out in exchange for a non-zero share of profits? If so you have a new partnership and can move on to problem 2:

Problem 2 is HMRC may say you are running one business split over two entities, you would have to look over https://www.gov.uk/hmrc-internal-manuals/vat-single-entity-and-disaggreg... and decide whether you are (or pay someone to help you decide).

Thanks (1)
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By Matrix
21st Nov 2019 08:37

Can you run the second business as a sole trader?

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Replying to Matrix:
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By LHM
21st Nov 2019 11:09

I suppose this could be an option, but as my husband will be helping with the business I'm assuming this could cause complications?

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Replying to LHM:
RLI
By lionofludesch
21st Nov 2019 11:22

Helping you ?

Like an employee, you mean ?

Thanks (1)
Psycho
By Wilson Philips
21st Nov 2019 09:28

My usual question - is this a Scottish or English (or other) partnership?

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Replying to Wilson Philips:
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By The Dullard
21st Nov 2019 10:18

What difference does it make for VAT?

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Replying to The Dullard:
RLI
By lionofludesch
21st Nov 2019 10:59

Zero.

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Replying to lionofludesch:
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By The Dullard
21st Nov 2019 11:09

What's a rhetorical question?

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Replying to The Dullard:
RLI
By lionofludesch
21st Nov 2019 11:21

Is it a sentence which is actually a statement but nevertheless ends with a question mark ?

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Replying to The Dullard:
Psycho
By Wilson Philips
21st Nov 2019 11:28

See below

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Replying to Wilson Philips:
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By LHM
21st Nov 2019 11:10

Hi, we are based in England. Would this make a difference?

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Replying to LHM:
RLI
By lionofludesch
21st Nov 2019 11:21

No.

Thanks (1)
Replying to lionofludesch:
Psycho
By Wilson Philips
21st Nov 2019 11:29

Wrong - see below

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Replying to LHM:
Psycho
By Wilson Philips
21st Nov 2019 11:31

In which case I have nothing to add.

However, to those that said that it would make no difference, they may want to do a little reading. Scottish partnerships are separate legal persons and, as such, Scottish partnerships with the same partners but carrying on separate businesses may register (or not, as the case may be) independently.

VATREG09050 - https://www.gov.uk/hmrc-internal-manuals/vat-registration-manual/vatreg0...

Thanks (3)
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By LHM
21st Nov 2019 11:19

Thanks all for your replies, they are very helpful and have made us think that we do just need to run the new business as VAT registered from the start.

This raises a couple more questions though, if anyone can help again?

Lets call the current business 'Wedding Shop' and the new business 'Sweet Shop'. So would we use the same VAT number for both businesses?

Our current partnership with HMRC is under the name of 'Wedding Shop', so would we need to register a new partnership with HMRC or could 'Sweet Shop' effectively trade under the 'Wedding Shop' partnership?

Would we split the 2 businesses on our Self Assessment or process them together as one business?

I did contact HMRC to ask these questions and they weren't very clear.

Thanks (0)
Replying to LHM:
RLI
By lionofludesch
21st Nov 2019 11:26

LHM wrote:

Thanks all for your replies, they are very helpful and have made us think that we do just need to run the new business as VAT registered from the start.

This raises a couple more questions though, if anyone can help again?

Lets call the current business 'Wedding Shop' and the new business 'Sweet Shop'. So would we use the same VAT number for both businesses?

Yes.

Quote:

Our current partnership with HMRC is under the name of 'Wedding Shop', so would we need to register a new partnership with HMRC or could 'Sweet Shop' effectively trade under the 'Wedding Shop' partnership?

If you want but you don't have to.

Quote:

Would we split the 2 businesses on our Self Assessment or process them together as one business?

If you want but you don't have to.

Quote:

I did contact HMRC to ask these questions and they weren't very clear.

No-one on here will be surprised at that. They'll be more surprised that you thought HMRC's advice would be worth having, clear or not.

Thanks (1)
Replying to lionofludesch:
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By LHM
21st Nov 2019 11:48

Thanks for this!

Good to hear that we can use the same VAT number and it would probably be easiest to keep it all within the existing partnership if it won't cause any issues down the line. I think I have learnt my lesson on asking HMRC for advice!

So if at any point we wanted to share say some packaging materials between the 2 businesses, would this be do-able? Would it matter if an invoice was made out to 'Wedding Shop' or 'Sweet Shop' or would this be irrelevant as both businesses are effectively the same thing in HMRC's eyes?

Another example is that I'm trying to set up a new account for the new business with Royal Mail. They are looking to put 'Sweet Shop' on a new account but under the umbrella of 'Wedding Shop'. I'm concerned that the invoices for 'Sweet Shop' may mention 'Wedding Shop' on them in case this causes any issues with HMRC, but based on the above would this not be an issue even if it did? I'm hoping that as long as we can tell the invoices apart for our own reporting reasons (to keep tabs on how much the 2 businesses are making / spending individually) then it won't matter to HMRC?

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