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split in ltd Company but - VAT liability

directors split Company but still sharing bank accounts

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Ltd Company client has 2 directors (A & B) who decided to split Company which had 2 Retail websites; each director now controls website each. Director B taken over site with lower turnover & regsitered previous Trading Name as Ltd Company. He insists he is not liable for VAT as the turnover is expected to be below the threshold. Director A maintains website with higher turnover & has continued to submit VAT returns since 'Company split'. Prior to split, original Ltd Company had bank facility which had 2 current accounts, 1 in name of each website (i.e.ABC Ltd t/a 123Sales & ABC ltd t/a xyz sales). Director B is still operating his business using original bank account, therefore part of original Ltd Co banking records ; my concern is that HMRC will insist the 2 Companies are still one trading entity as same bank account used & many supplier purchases for Director B Company are still bought under orginal Ltd Co name. Both websites sell the same products so I feel HMRC would still insist 'New business' should be VAT registered even if considered separate entity from original Ltd Co, as it was part of a VAT registered business. Welcome anyone elses opinions as I worry that HMRC may insist sales/income on  Director B New business should be included in Director A VAT calculations. I am only dealing with the daily accounts for the Original business with Director A.... dont think Director B is doing anything regarding his accounting records yet!

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10th Jul 2019 18:44

So are they both trading through the same company or not?

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to johngroganjga
11th Jul 2019 12:32

johngroganjga wrote:

So are they both trading through the same company or not?

Have we had a response to this question yet? I can't say it's clear to me what the answer is - despite that being rather important to the answer(s) sought by the OP.

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10th Jul 2019 20:15

Messrs ~A and B need to get their sh*t together. Either they're still married or they're not. If they're not, one of them needs to move out and set up their own place.

What? It's business? Same stuff applies. HMRC don't care and why should they? If your clients don't sort it out for themselves, HMRC will push on whichever is softest and they'll end up paying the bill.

All you have to do is make your client understand that they need a proper and clean break. None of this separated but sharing the same bed. Or company .

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to paul.benny
11th Jul 2019 08:52

Love this analogy Paul - I’m going to try and use this at some point!

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11th Jul 2019 08:41

You have two separate companies, owned and run by two separate people, it should be as clear cut a case of separate businesses as you can get, but one of them is using the other's bank account, presumably because these people are idiots.

Somebody (you) needs to point out they are idiots.

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11th Jul 2019 08:53

What fool thought this would work ?

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11th Jul 2019 09:45

Are these two companies effectively operating as a JV?

VAT might not be your only issue.

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11th Jul 2019 10:08

Has director B resigned from Co A, who are the shareholders of the companies. Are the two directors related? It sounds like someone has had the idea that they can avoid VAT on some of their sales and sell a cheaper product. Will Co A sales go below the VAT threshold now Co B has been set up.

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By beanz
11th Jul 2019 12:11

The 2 directors consider themselves as separate Companies now ... even though they have not actually taken any steps to inform HMRC of the business separation; sharing main bank account in original Co. name which has 2 subsidiary accounts, 1 in each of the Website trading names, as it was, prior to separation. I keep telling them that it's highly unlikely HMRC will consider them as 2 separate Companies & therefore VAT & Income from each 'business' should be declared as one business until a Formal split has been actioned - i.e. separate bank accounts / removal from Directorship on old Company etc. Director B has been told by an 'accountant' he knows (!!) that he can be considered as a 'new' Company...... I think if they continue to ignore my advice, I may have to decline offering my services to the original Company.

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to beanz
11th Jul 2019 12:31

beanz wrote:

The 2 directors consider themselves as separate Companies now .....

The trouble is that nobody else does.

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to beanz
11th Jul 2019 12:39

beanz wrote:

I keep telling them that it's highly unlikely HMRC will consider them as 2 separate Companies

Assuming, in the absence of clarification, that there is indeed just the one company, I'm not sure you are helping the matter if you are talking like that to your client(s). Either there are two companies in which case HMRC will "consider them as" two separate companies or there is one company in which, I would guess, HMRC will regard it as one company.

There may be some theoretical complex alternative analysis but, absent any documentation supporting that, I would suggest the obvious is probably the answer: 2 companies = two companies; one company = one company.

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11th Jul 2019 16:00

Who do Director B's customers think they are buying from? Does his website now say xyz is a trading name of XYZ Ltd?

The person making a sale and the person banking the cash don't have to be one and the same, but its a tough argument to make without any documentary evidence.

HMRC will obviously push to combine them if they can claim some VAT.

Of course, if ABC Ltd is banking XYZ Ltd's sales then there's probably a whole host of other issues beyond VAT.

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