Just been to see the two partners (they are brothers) in a reputable double-glazing installation partnership which they started 25 years ago.
It is Vat registered and makes modest profits. Turnover is around £130,000 a year.
Business is worsening, competition is more fierce, considerable time is wasted selling the product (2-4 hour stints) to potential customers who switch loyalties last minute, the two brothers are aging, and it is a "young lads" job. Young "fly by night" installers are prepared to fit the doors and windows for next to nothing just to earn a couple of hundred quid cash for a Saturday morning's work and this is undermining the trade.
To cap it all, Making Tax Digital for VAT has made them focus on the direction in which they are going.
They have decided to go their separate ways. The younger brother will carry on as a sole trader keeping the old partnership trading name. It is envisaged that turnover and profit will more than halve.
But the elder brother, who is completely fed up with the UK is planning to carry on trading in the UK for a couple of years installing double glazing and then join family abroad to work alongside them. He has also admitted to getting a little dizzy (old age) when he is hanging out of a third floor window trying to install double glazing.
Having two separate trades means than they can deregister for vat. It would appear that the economic benefit (extra cash) to them would be £7,000 per annum each with VAT deregistration.
I sat with them and warned them about HMRC Disaggregation issues. They have reassured me that it would be possible to make two entirely separate trades, but the following issues were raised by me:
1) They have always used just the one van which the elder brother is the registered keeper of. It is shown as a partnership asset in the accounts. It would appear that the van would be of greater use/benefit to the younger brother, so I assume the younger brother will buy the other half share of the van from brother at market value. They had assumed that they could just carry on owning the van jointly, but I told them I assumed this would be too provocative to HMRC re VAT.
2) Presumably, if the elder brother then wanted to use the van he would be charged a market value cost for daily hire by the younger brother.
3) Partnership tools are ancient and of little value and apparently it would be easy to divide them between the two sole traders.
4) When I mentioned having separate suppliers they balked at that idea. They must have a good deal going on with the present supplier. And in many towns there is just the one large supplier who has cornered the market in that area.
I did stress that the two sole trades must be genuinely separate trades with no overlap at all. They said this could be done, but it is the same van/same supplier which concerns me most.
Since the elder brother is the one with the sales skills/good bedside manner, he could quite easily become a double glazing sales rep with his trade contacts for a while after the partnership breakup which would stop two trades existing at the same time.
The problem I have is that I am out of my comfort zone and much HMRC VAT guidance in this area has been withheld from public scrutiny.
The partnership breakup is for personal rather than VAT issues, but it is the MTD for VAT which may have been the proverbial "straw which broke the camel's back".
What problems do readers envisage with the above. Have any readers witnessed a similar breakup which has survived HMRC VAT Disaggregation scrutiny.