Splitting our Limited Company in 2

We want to split our "plumbing and heating" limited company into "plumbing" and "heating" companies

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We currently have a Limited company (my husband and I are Directors) which deals with plumbing and heating. We would like to instead, have 2 separate companies each with thier own focus. 

1) Plumbing (bathrooms, leaks, drainage)

2) Heating (gas work, boilers, central heating)

The reason is because my social media and marketing is getting customers confused as to what we do, so this way we would be able to treat them as 2 separate companies and I can market them both accordingly in their own right. It also means that we can change our hourly rate according to the type of work (gas work is slightly higher in labour fees). 

Both companies would have us both as Directors, from the same address (home address), and will use some of the same subcontractors depending on thier expertise. We would have separate bank accounts and invoices for each. 

My questions are:

1) Do we need to close our established business and start both from scratch or can we keep the business name and just split in some way?

2) VAT implications if one company meets the threshhold and the other does not? 

3) Will HMRC treat this as one company with 2 elements, or as 2 completely separate companies each with their own accounts, etc. 

Any advice would be greatly appreciated. Many thanks.

Replies (25)

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By bernard michael
10th Jul 2018 14:33

Consult a local accountant. There is too much at stake for advice from Aweb to be efficacious

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Replying to bernard michael:
RLI
By lionofludesch
10th Jul 2018 14:53

bernard michael wrote:

Consult a local accountant. There is too much at stake for advice from Aweb to be efficacious

I could not agree more with this. But the short answer to your question is that two companies will be treated as two companies with two VAT registrations, two PAYE schemes, two Corporation Tax Returns, two sets of accounts, double the risk of getting a fine for late submission of some return or other etc etc. Do the two branches of the business share engineers ? They'll need to have two employments in future.

Also, if Heating Co runs short of piping and takes some of Plumbing Co's stock, HMRC will expect Plumbing Co to invoice Heating Co for that.

Much easier to have two brands, owned by the one company.

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Replying to bernard michael:
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By Accountant A
10th Jul 2018 17:44

bernard michael wrote:

Consult a local accountant.

You mean the one who prepares the company's accounts?

Having looked at the August 2017 accounts, I can see why the OP prefers to ask a load of random internet strangers.

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Replying to Accountant A:
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By daniobentley
10th Jul 2018 17:52

What does this mean?

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Replying to Accountant A:
RLI
By lionofludesch
10th Jul 2018 17:58

Well, I didn't like to raise the point but I spotted a couple of errors. Like the registered offices on the accounts and CoHo register being different. Dunno why there are so many notes or what happened to notes 2, 3, 5 and 6. Or the incomplete sentences or the disparity between the shareholdings on the register and those in the accounts.

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Replying to lionofludesch:
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By daniobentley
10th Jul 2018 18:04

Oh dear! I suppose my next question would be: can anyone recommend an excellent accountant?!

Our company year ends soon and I don't entirely trust my new accountant which is certainly worrying! Hence why I'm on this site :)

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Replying to daniobentley:
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By lionofludesch
10th Jul 2018 18:14

daniobentley wrote:

Oh dear! I suppose my next question would be: can anyone recommend an excellent accountant?!

I could - but he's out of your area.

;-)

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By mrme89
10th Jul 2018 14:37

Just have two different brands using the existing company. Job done.

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Replying to mrme89:
By ireallyshouldknowthisbut
10th Jul 2018 16:18

What he said

Two brands, one company.

Make it simple and keep your accounting fees down.

Generally I quote 2.25 times the fee for two companies vs one with the same trading as it make life a lot more complex.

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Replying to Portia Nina Levin:
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By emmablyth
10th Jul 2018 16:46

not a very helpful or professional response
do you shout and swear at your customers too?

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Replying to emmablyth:
By ireallyshouldknowthisbut
10th Jul 2018 16:50

@emma

Have you not met PNL?

Feisty is what PNL does, I am never sure how far in the cheek the tongue sits, but I believe rather deep.

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Replying to Portia Nina Levin:
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By emmablyth
10th Jul 2018 20:05

i doubt you have any customers or clients with your immature and unprofessional behaviour.

I come on this site to learn about accountancy and to read intelligent helpful replies to questions, not read pathetic comments by self important fake accountants

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Replying to Portia Nina Levin:
By ireallyshouldknowthisbut
10th Jul 2018 16:51

@PNL I try to spend more time with less stupid people but I keep on coming on here which is a bit of an own goal on that department.

Which is somewhat ironic given I am hardly the poster boy for towering intellect.

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Replying to Portia Nina Levin:
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By daniobentley
10th Jul 2018 17:12

Super unhelpful, you may want to find a more constructive hobby!

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By Jdopus
10th Jul 2018 15:00

While I agree with bernard about appointing an accountant before doing this (because you really need to look at the details of what each company covers and how each invoices and keeps their records), I would advise the following:

1) You may be able to keep the business name, but it does present a risk that HMRC will see your attempt to split the business as motivated by VAT avoidance and treat them as one entity.

2) & 3) If one company meets the threshold and the other does not then in principle only the company which is over the threshold would need to register. However HMRC may take the view that plumbing and heating are in practice the same trade. The test for division of companies can be found here:

https://www.accountingweb.co.uk/tax/business-tax/splitting-a-business-to...

Financial links
Financial support given by one part to another part one part would not be financially viable without support from another part
Common financial interest in the proceeds of the business

Economic links
Seeking to realise the same economic objective
The activities of one part benefit the other part
Supplying the same circle of customers
Organisational links

Common management
Common employees
Common premises
Common equipment

From how you describe the situation, your split would probably fail the organisational links test, but it would have to fail all three to be treated as one entity. This is something your accountant will need to advise you on as it relates to the precise details of how your business operates.

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Replying to Jdopus:
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By daniobentley
10th Jul 2018 17:13

That's really helpful thank you for taking the time.

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By andy.partridge
10th Jul 2018 15:16

Because you are a plumbing and heating company your customers are confused about what you do. Really?

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Replying to andy.partridge:
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By zebaa
10th Jul 2018 16:14

Andy, don't underestimate peoples capacity for ignorance.

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Replying to andy.partridge:
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By Accountant A
10th Jul 2018 16:26

andy.partridge wrote:

Because you are a plumbing and heating company your customers are confused about what you do. Really?

I would have thought using the name "Plumbminto's" doesn't help.

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Replying to andy.partridge:
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By daniobentley
10th Jul 2018 17:17

Yes people who hire us for gas work have no idea we do bathrooms and the same for our bathroom customers who need a new boiler. People don't automatically put the 2 in the same category so I have to focus my social media campaigns on one thing at a time. I suppose some customers may also feel that a specialist gas engineer would be less able to carry out a bathroom installation in comparison to a bathroom fitting specialist who only focuses on that trade...

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chips_at_mattersey
By Les Howard
10th Jul 2018 15:30

I share others' concerns over the VAT issue. Even if your intentions are product-driven, it may look to HMRC like artificial separation, if one is below the threshold.
The services you intend to provide a too similar, and HMRC will have every right to aggregate your turnover, and treat you as a single legal entity.

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Replying to leshoward:
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By daniobentley
10th Jul 2018 17:50

Yes I see what you're saying, though it is frustrating because the 2 trades really are not the same :(

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Replying to daniobentley:
chips_at_mattersey
By Les Howard
10th Jul 2018 19:09

Fair comment. But you would have a difficult job convincing HMRC of the difference.

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Replying to daniobentley:
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By lionofludesch
10th Jul 2018 22:16

daniobentley wrote:

Yes I see what you're saying, though it is frustrating because the 2 trades really are not the same :(

Maybe they're not but they're still run by the same people who used to see the two trades as one business. HMRC are bound to ask what caused the change of mind. Maybe they'll conclude it's saving VAT. Maybe they won't.

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By Vaughan Blake1
11th Jul 2018 15:17

Why not change the company name to something like 'Danio's Plumbing & Heating'? Then it does what is says on the tin.

Having different charge out rates for different jobs doesn't require a second company, it just requires better timesheets!

Years ago I had a client company that did funerals and ran a mobile disco. Strangely, it worked fine!

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