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VAT and 2 businesses - sole trader and Ltd company

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Hi, hopefully someone can guide me with this as I'm getting myself confused.

I have been a sole trader clinical aesthetician for a number of years, operating out of a small clinic - fulltime.  The turnover has been under the VAT registration threshold.  There has been very little profit in this to date as the start up costs, training, equipment etc has been quite high and customer footfall low, but I foresee this will change over the coming years.  3 years ago I bought a beauty salon and this business was set up as a limited company.  Aside from being the Director, this company has its own Manager and staff and is self sufficient - the trade is classic beauty - nails, spray tans, waxing etc.  This business is VAT registered and profitable. Recently my one room clinic for my skin business lease needed renewing, and because the footfall in the area of this business is far less than the beauty salon, and the beauty salon is large and has multiple rooms for rent - I decided to "rent a room".  I have set up the appropriate contract documentation between the 2 businesses, as I have for other sole traders that have rented rooms (such as a Doctor and a Perm Make Up artist).  The skin business and the beauty business are separate entities - I personally do not work across both businesses in terms off the treatment offering.  There is no cross over with the therapists.  I operate from one room and I work fulltime in skin.  The treatments, equipment and supplies and completely separate.  The beauty side is managed by the Mangager and the Therapists and offer completely different treatments.  For practicalities, we share a reception, room booking system, sundries such as tea and coffee for clients, waste disposal, overheads etc and my treatments have been added to the brochure, website and and booking app.  To the public this all comes across under the banner of one branded business.  This is no different to the facilities provided to the other sole traders and detailed in the terms in the contract and included in the costs.  We are all joined.

However after reading a few things I am a bit concerned. Because I am Director of the VAT registered beauty business and operating as sole trader not VAT registered - will I need to combine these as one and pay VAT on all treatments offered at that premise?  My main reason for not just combining the businesses now I have moved is that ultimately I may sell off the beauty business which would not include skin, myself or the equipment so I wish to keep them as separate entities.  Am I ok to do this and if so, what should I do to make sure I would withstand audit from HMRC?

 

Any help much appreicated.

Replies (14)

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By Josie0074
11th Jan 2020 10:15

I should add - the majority of the customers started off as not being shared, however organically this has started to change just because of skin clients enquiring about beauty and vice versa - this is one of the obvious benefits of all sharing a facility and is actually part of the contract T&C's - we all positively help encourage each others businesses. However to date I would say customer base is still only 20% cross over.

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By lesley.barnes
11th Jan 2020 10:18

You need to speak to your accountant who will be able to look at both businesses and advise you. Purely based on what you say about the way the business is run I would say that this is one business.

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RLI
By lionofludesch
11th Jan 2020 10:55

"My main reason for not just combining the businesses now I have moved is that ultimately I may sell off the beauty business which would not include skin, myself or the equipment so I wish to keep them as separate entities. "

This bit is a point in your favour. But, given all the points which aren't, how would you achieve this ?

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Replying to lionofludesch:
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By Josie0074
11th Jan 2020 12:19

The "rent a chair" model is very common in beauty and hair dressing - each person operates within their own company under the same roof, sharing the same facilities, advertisement, reception, branding, website etc... it happens all the time. But each person is a separate business and entity. I guess I assumed it would be fine applying to myself as it does to the other 2 people that rent a room. I'm still struggling to see why it wouldn't, but I will pick it up with an accountant formally.

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Replying to Josie0074:
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By lionofludesch
11th Jan 2020 13:37

Quote:
I'm still struggling to see why it wouldn't, but I will pick it up with an accountant formally.

It's because the two entities - you and your company - are controlled by the same person - you.

It's not the same situation as that of the other two chair renters.

It's not necessarily fatal to your plan but you need to take care. This is a very grey area.

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By Accountant A
11th Jan 2020 10:58

Could you explain why you think people should pay you for beauty treatments but we should give you professional advice on tax for nothing? I'm struggling to understand your thought process.

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Replying to Accountant A:
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By lionofludesch
11th Jan 2020 11:17

Zzzzzzzzzzzz ..........

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Replying to lionofludesch:
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By Accountant A
11th Jan 2020 11:25

Quote:

Zzzzzzzzzzzz ..........

WAKE UP! There's tax returns to do!

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Replying to Accountant A:
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By lionofludesch
11th Jan 2020 11:32

Quote:

Quote:

Zzzzzzzzzzzz ..........

WAKE UP! There's tax returns to do!

Only for folk who think it's too early to bring their stuff in yet,

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Replying to Accountant A:
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By Josie0074
11th Jan 2020 12:16

Well maybe I'm a bit naive but I thought this was an advice forum in a free domain, have I got this wrong?

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Replying to Josie0074:
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By Accountant A
11th Jan 2020 12:27

Quote:

Well maybe I'm a bit naive but I thought this was an advice forum in a free domain, have I got this wrong?

Yes.

https://www.accountingweb.co.uk/about-accountingweb

"AccountingWEB.co.uk is the largest independent online community for accounting and finance professionals"

But the real point is why any competent business owner would think it sensible to take advice from internet randoms, who may or may not know what they are talking about. Would you do the same if you needed legal advice? If someone gives you wrong advice and you act on it and HMRC come after you, what happens then? You can sue an accountant you've paid if you get duff advice. And the chances of getting duff advice are reduced if your adviser knows all about you and your business. Asking a relatively narrow question with minimal background information is unlikely to give a satisfactory result.

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Replying to Josie0074:
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By zebaa
11th Jan 2020 12:34

You will get all sort of replies. Ignore the rubbish ones & don't rise to the bait. I think you have a problem, but you need paid for advice on this. Look around for people you can talk to face to face. All accountants are not the same & you want someone who will listen & bat for you, not a pedant. Choose carefully. Be ready to pay, it will be money well spent. Lastly, Good luck.

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Replying to zebaa:
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By Josie0074
11th Jan 2020 12:50

Genuinely, thank you! Already on the search for a specialist. I just followed the lead of many others that asked advice on here. Nice to hear from someone with kindness, I'm sure that goes a long way in business.

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By JDBENJAMIN
11th Jan 2020 12:14

Ask your own accountant.

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