VAT registration - how to calculate past turnover?

VAT - combination or separation of businesses

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A builder used to trade as a self-employed labour-only subcontractor.   Due to the current house extension boom, he secured a contract to construct these, for which he incorporated.  Beside some labouring his job now includes organising the work, purchasing material and supervision of 3 or so subcontractors, something he has not done before.  Should his self-employed turnover be amalgamated with his company turnover when calculating past turnover for VAT registration purposes?

Thank you...

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VAT
By Jason Croke
04th Feb 2021 12:52

What do his invoices say?

When the customer pays, who's bank account does it go to, sole trader or Ltd?

In your post you state "besides some labouring, he purchases materials and hires sub-contractors", who is he buying materials for? who is hiring/paying the sub contractors?

HMRC might take the view that the income belongs to either or both businesses, HMRC might think there is artificial separation going on (whether intentional or not). At first glance logic would say the sole trader has ceased and the Ltd is taking on the work, but without contracts or money trails, leaves door open for HMRC to have fun.

What about CIS, if he is hiring subbies and supplying materials and labour then he should he not be registered for CIS? That may further clarify as to who is earning the money and therefore the turnover threshold.

If there is a clear "line" (as per my comments above) between the old sole trader and the NewCo, then you would not include the sole trader income in the turnover calculation as the sole trader is nothing to do with the NewCo.

But then also look at how the Ltd was created, was it done as a ToGC with all assets transferring from sole trader to NewCo, is sole trader still trading? If so, what is it doing? Is NewCo using any assets of the sole trader (van, tools, etc), if so how did NewCo acquire those assets, etc.

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Replying to Jason Croke:
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By newman
04th Feb 2021 14:44

The self-employment ceased following which a Ltd was formed to construct an extension (garage); there were no assets to transfer to the Ltd. There are no other issues, everything else is dealt with 100% correctly CIS not excluding, all we need to know is:
Should the old labour-only self-employed turnover be included when calculating at the end of each month whether the Ltd turnover for the past 12 months exceeded the VAT registration threshold £85k?

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Replying to newman:
VAT
By Jason Croke
04th Feb 2021 15:17

If the self employment ceased, then that turnover for the sole trader draws a line on that sole trader activity. The Ltd is an entirely different "entity" and so the turnover for VAT resets. If you are saying the Ltd started from scratch with no assets, no goodwill, nothing, then the turnover of the Ltd is all that matters.

Can I ask, what is the uncertainty here? Not trying to be difficult, sole trader and Ltd are entirely different "persons" for VAT, sole trader ceased, the end. NewCo set up, turnover starts from Nil because you say its not a ToGC.

In your initial query, you state the Ltd was set up because client got a big job with a housebuilder, but in your response, you're saying the Ltd was formed to build a garage/extension. A NewCo just to build a garage, must have been a big one :)

Is this client the same one who was struggling with registering for CIS?
https://www.accountingweb.co.uk/any-answers/cis-42

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Replying to Jason Croke:
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By newman
04th Feb 2021 16:45

Surely you are not suggesting that on reaching VAT registration limit the builder can set up an entirely new entity, ltd or s/t, and avoid having to register??

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Replying to newman:
VAT
By Jason Croke
04th Feb 2021 17:29

A quick search, this is a regular query, but I take your disbelief as genuine. Link here to article on AccountingWeb from 2015 (and you can Google several others from other years).
https://www.accountingweb.co.uk/community/blogs/leshoward/togc-and-vat-r...

You've not answered any of the questions I've asked, so I can't help you any further, but the VAT question originally posed is now answered.

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