Registering for VAT with different business partne

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Hi, if a client has a ltd co with person A and another ltd co with person B, but they are doing very similar things, would both business turnovers count to the vat threshold. I see it from HMRC's point of view about my client, but it would be unfair on the people they are in business with as they would then be vat registered, even if their own business didn't go over the threshold.

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By carnmores
04th Mar 2024 10:48

You need to find out why these companies were set up as they were. If the limited companies are say 99 share to 1 in each case (or similar) this may well be disaggregation. Also where are the companies trading from and what active part do the other shareholders play in each company? my impression is that this is an attempt to avoid VAT

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By k123cat
04th Mar 2024 11:02

50/50 with each different partner. They’re rental properties, but subject to VAT. He just bought properties with 2 different people. They don’t “trade” from a particular premesis, they have registered addresses on companies house to avoid giving their personal addresses out. Minimal input from them, agents deal with the people renting the rooms, they just own the properties.
Seems very unfair on the other people he has bought with if they have to register for VAT?

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Replying to k123cat:
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By Tax is always taxing
04th Mar 2024 11:29

Who opted to tax the properties?

...or is this FHLs?

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Replying to Tax is always taxing:
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By k123cat
04th Mar 2024 11:36

they’re serviced accomodations which are subject to VAT in same way as FHLs

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VAT
By Jason Croke
04th Mar 2024 11:41

Not sure I understand the question.

Seems to be saying that the client has Ltd company with person A (which suggests joint shareholding between "client" and person A) and that the client also has a Ltd company with person B (also suggesting a joint shareholding).

So I read that as "client" has shareholdings/named Director in Company A and Company B and that Company A and B also have other shareholders/Directors.

Link here to HMRC's guidance on what they consider artificial separation/splitting a trade to avoid VAT
https://www.gov.uk/government/publications/statement-of-practice-4-1983/...

One of the red flags is common Directors/ownership...so if "client" is a dominant shareholder of Ltd A and Ltd B, then HMRC might consider this artificial splitting, but there is much more to it than just ownership/control.

OP seems to be saying that it is unfair if person B has to register for VAT simply because "client" is VAT registered, but it is the Ltd company/entity that registers for VAT, not the individual shareholders/Directors. and if the triggers for disaggregation are met, then it leaves it open for HMRC to attack the business.

If this is serviced accommodation, presumably one of the companies is over the VAT threshold/VAT registered already (hence the OP's question about clients VAT status affecting the other persons), this will all come down to the details and so suggest you read through the link given and you can see what the client does and how that fits in with the triggers and red flags that HMRC are looking for.

In theory, if your client has set up separate companies to run separate serviced accommodations, the first question is to ask why it has been setup that way - is it because each investor/partner wants a separate company? Is it because each property is in a different part of the UK? Don't need answers here, the questions are for you to ask your client and then revisit the link above to see if any pressure points.

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By DKB-Sheffield
04th Mar 2024 12:05

On the 'fairness' point... I'd argue that the artificial separation/ disaggregation rules are quite the opposite of 'unfair'.

It would be pretty 'unfair' to allow entities that could be deemed to have separated artificially the ability to trade without compulsory registration.

Whilst tax is not, and never has been, about 'fairness to all', this is IMO a fair rule.

As Jason points out, there are many things to consider when determining whether disaggregation applies - or could apply. Control and services provided are just 2. All will require a thorough understanding of - not only the legislation/ guidance - but of the intricacies of the setup. The latter is alas, factual and specific to the precise case. Hence it could not possibly be explored on a forum.

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