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two separate limited companies with same sharehold

is this one or two businesses for VAT?

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Same person is the sole shareholder of two limited companies which have the same activity (but one provides services to vat-registered and the other to non-registered clients). Each company is independent from the other financially, they share premises but costs are recharged from contracted company to the other at arms length). One is registered for VAT but the other is not. How likely is it that the HMRC will treat this as one business for VAT reghistration (under Schedule 1a VATA 1994 artificial business splitting)?  thanks. 

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By Les Howard
30th Jun 2017 10:37

Typical description of artificial separation scenario. This is one of the primary targets of Sch 1A.

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By MissAccounting
30th Jun 2017 10:44

You see this commonly for cleaning companies, they split off the commercial cleaning side of it to a VAT registered business and then magically keep the domestic side of the business under the VAT threshold. Luckily I dont act for any cleaning companies but suspect HMRC may well treat it as one from a VAT point of view.

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By Portia Nina Levin
30th Jun 2017 10:46

Under Sch 1A, HMRC cannot go backwards. I am aware of instances where HMRC argue that two (or more) related undertakings are acting in partnership, so that they can tax that partnership retrospectively, rather than go the Sch 1A route.

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By Echo761
03rd Jul 2017 11:06

I would have thought that as they are two distinct legal entities they should be considered separately, but I can see an argument from HMRC that as sole directors in both the same then its disaggregation.

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Nigel Harris
By Nigel Harris
03rd Jul 2017 11:08

Who knows? is the short answer, but I know of accountants who have done this themselves and have never had any come-back from HMRC.

Artificially splitting 2 sole trades (eg husband & wife) or 1 sole trade+1 partnership are more easily shot down by HMRC. I think 2 companies is a harder target, but they remain a risk unless there's a very clear separation of the two operations.

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By SXGuy
03rd Jul 2017 12:54

Perhaps it would be wise to have 2 further shareholders on each company so they are treated as seperate partnerships? There would then be no argument.

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By raju m
03rd Jul 2017 14:48

If the director/shareholder has a valid commercial reason to run two separate businesses, he should not have any problems from the VAT man.

Raju M

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