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VAT - separate businesses - thought?

My client is starting new ventures

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I have a client, she is a succesful PT earning approximately £120kpa from her face to face PT sessions with (mostly) very wealthy individuals (hence the high income). She is vat registered.

Like many in her sector covid has forced her to consider the best way forward and she is planning to expand and diversify and i am wondering if the new businesses are suitably different to be set up in a seperate company(s) and just wondering if readers have thoughts - and if my memory serves me correct part of my thinking of the bsuinesses being suitably different comes from a talk a very well know VAT lecturer did i was on a few years ago discussing his own income streams as an example.

My client plans to start up a "train the trainer" business teaching and training other PTs her methods and sharing her experience - this would be predominantly online with PTs from across the country paying to learn how to be a better PT with a view to boosting their income. In my opinion this business is sufficiently different from her current face to face PT sessions with clients to be seperate.

The other strand of income  i am having mixed thoughts about. 

Covid has obviously driven certain work online and she plans to offer a new online only PT session to remote clients at a discounted price to the face to face sessions - this would be all online some group some one on one but would be completely different clients from her existing face to face clients. After discussing at length the issues of income splitting she thinks this one is sufficiently different (and she is aware of the need for different banks, website etc etc) to be seperate but i am not 100% sure - my head and heart are arguing !

The other one is an online only diet and nutrition service adving on diet and the right foods to eat to help promote fitness (it is all the rage these days and i know that some gyms are offering this as an add on !) again this would be online only and would be different clients to the face to face clients she currently looks after. Again this one i am unsure as maybe the knowledge she has will be used with her face to face clients as well as with the online only ones - i do however see how this could be seperate as it is not PT but more dietry so is a different business per se.

I would welcome any thoughts or experience readers may have before i a) speak to her again and then if needed b) consult a vat expert to get some further guidance if there is doubt - thanks in advance for any thoughts or indeed critisism if any of my thoughts are wrong !

 

 

 

 

Replies (15)

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chips_at_mattersey
By Les Howard
27th Jan 2022 16:00

If you have to ask the question about having a separate business, then that is indication that HMRC may wish to challenge it.
Although the client base may be distinct, the essential content of the material appears fairly similar. The fact that courses are delivered online rather than face-to-face is not relevant either.
Further, if the client did have an arrangement with, for example, two limited companies, and HMRC challenged it, the costs of defending the arrangement would be substantial.
No criticism for you asking the question. My response is always cautious; others might be more bullish.

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By David Ex
27th Jan 2022 16:03

If you search for “artificial separation” there’s a number of examples that have been discussed on here.

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ALISK
By atleastisoundknowledgable...
27th Jan 2022 17:51

Unless I missed it, you didn’t say anything about limited companies; as far as I’m aware, if she’s vat registered, she’s vat registered - any self-employment she has is by default VATable, irrespective of separation.

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Replying to atleastisoundknowledgable...:
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By Wanderer
27th Jan 2022 18:10

You missed it!

Partyondudes wrote:

...... i am wondering if the new businesses are suitably different to be set up in a seperate company(s) and just ....

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By Gone Sailing
27th Jan 2022 17:53

There's VAT Splitting.
In the case of Employees / ers NI there's "business in association"
https://www.gov.uk/hmrc-internal-manuals/national-insurance-manual/nim10010

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Part on Dudes
By Partyondudes
27th Jan 2022 18:18

Thanks so far all for your responses - the reason i asked the question is that i was unsure about the splitting.

I did mention the vat lecturer in my original post who used an example of a vat consultant who had 3 seperate businesses - one was writing, one was lecturing and one was consulting/vat private clients and all 3 were separate for vat purposes .

It was that example i was "hanging my hat on" for the "train the trainer " new and to my mind different business which is providing consulting and advice to fellow PTs to improve their business as opposed providing services to private individuals.

Not sure if that set up as a separate Ltd company may be OK - if readers think it possible i would probably also seek clearance.

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Replying to Partyondudes:
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By Wanderer
27th Jan 2022 18:43

Partyondudes wrote:

I did mention the vat lecturer in my original post who used an example of a vat consultant who had 3 seperate businesses - one was writing, one was lecturing and one was consulting/vat private clients and all 3 were separate for vat purposes .

You misunderstood. If the individual is VAT registered for any businesss then all 3 businesses would be the same for VAT purposes.
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Replying to Wanderer:
Part on Dudes
By Partyondudes
27th Jan 2022 18:44

Thanks The Wanderer (apologies if i was unclear) the consultant specifically said that only one of his (so i assume companies) was vat registered and so the two other smaller income sources were not subjected to vat - or at least that was how it was implied/i took it!

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Replying to Partyondudes:
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By Wanderer
27th Jan 2022 18:50

Well that's two different people then.
1. The consultant (an individual) .
2. A limited company.
Might even be 3 separate companies from your statement?
These things matter so you really need to be sure what you are saying / giving advice on.

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Replying to Wanderer:
Part on Dudes
By Partyondudes
27th Jan 2022 19:03

Thanks very much - I am talking about separate companies - in my original post i did mention that "i am wondering if the new businesses are suitably different to be set up in a separate company(s)" as that bit i have always been clear about - they would definitely be different entities.

My key question is if the work is sufficiently different to not be "challenged" by HMRC and aggregate the companies together for vat purposes

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Replying to Partyondudes:
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By Gone Sailing
27th Jan 2022 18:50

That's what the lecturer did, do you ask if HMRC had been consulted?
Not many of us would have risked that scenario.

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VAT
By Jason Croke
28th Jan 2022 09:32

HMRC have a "Statement of Practice 4" document which is helpful in giving you a steer
https://www.gov.uk/government/publications/statement-of-practice-4-1983/...

Always tricky these, there are three "pillars" which HMRC measure and all three must be met, thus if you only meet two of the three pillars then its harder for HMRC to attack.

The three pillars refer to connections/links, specifically i) financial inks, ii) commercial links and iii) economic links. Look at section 6 of the SOP4 guide.

I think some of the clients proposals are "okay" (as in based on the scant information we have here), I think the "train the trainer" could be argued as a separate trade on the basis they are different client types - a person like me wanting some PT as opposed to a PT wanting to up their game to attract better customers.

The online personal training, they may not be face to face but its the same customer base and same service being provided, one could say that a Covid lockdown has meant more desire for video PT, but its still PT and its still the same clientelle...it is subjective of course.

As for the diet/nutrition service, that is part and parcel of having a personal trainer, certainly my PT advises me on diet....no point sweating it at out the gym and have them swearing at me to push that bit further if I go home and have a Big Mac. Not saying its impossible, it may be possible to separate PT clients from those just wanting diet advice, so we always come back to the three pillars/links and we look at each objection against the pillars/links to see if we feel comfortable with that.

These things fall down on the detail. Yes, separate bank account, different email address for the online PT and the in person PT, even a different website......and then look at stocks and assets and the laptop she uses....she is only using that for one of her trades yes, she can;t use that laptop to do the accounts for the other trades as that is a shared asset...how can the new trades work if they don't have their own laptop...and then we are creating economic and organisational links? Will HMRC ever know she is sharing a laptop between three different entities, probably not.

There is no right or wrong answer here, only a balance of risk against HMRC spotting it and risk of going against the SOP4 guidance. If we then think about having separate bank accounts, separate websites and webhosting, separate phone numbers, separate sets of year end accounts and filings then you have to ask if those costs/risks are worth it.

Its often worth it (splitting) when dealing with B2C, but the point is it takes care to set things up and it takes even more care to maintain it - often the setup works then the client gets lazy and cuts corners to save costs like sharing a common telephone or website page and they accidently create 3 links where there was only 2 links before and suddenly we're in the high risk zone/easier for HMRC to attack.

With the VAT Advisor example, the writing gig is like me writing articles for AccountingWeb or Bloomsbury and entirely different to my day-to-day clients of SME's/other firms of Accountants with VAT queries. I used to do lecturing and again different market - it's not consultancy/giving advice, it is training and finally we have the consulting/advisory for SME's, etc.

I think the lecturing and consultancy are close bed fellows but remember HMRC need all 3 pillars/links, so all you need to do is break one link and HMRC will struggle. I think the VAT lecturing and VAT consulting to SME's are very close, with similar clients and with a potential to gain clients on the back of a lecture, so it is tenuous but it comes down to attitude to risk and whether you feel you can argue it, I'm sure a VAT advisor would have a good chance of arguing it out with HMRC.

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Replying to Jason Croke:
Part on Dudes
By Partyondudes
28th Jan 2022 10:31

Jason thankyou so much for such a full and considered answer that considers my clients situation in detail but can also be applied to other circumstances if others have similar situations. My concern that the nutrition and online businesses were too near to the current PT income you seem to agree with and i had initially raised that with my client - although she has been insisting they are different i feel that it is likely that may fail. I will go through the train the trainer trainer business with her and see what the next steps might be.
Thankyou again for such a detailed response.

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Replying to Partyondudes:
VAT
By Jason Croke
28th Jan 2022 10:56

You forgot to say "party on dudes!" (one of my favourite films)

The starting point for splitting the business is not to try and start from a position of wanting them split and then reverse engineer.. instead ask why these new ideas have to go into separate entities and not in the existing business. That often puts a different slant on the question.

For example, there may be greater risks in the PT business (personal injuries/being sued) whereas the training the trainer has lower risk as the customers are unlikely to exert themselves to the point of injury.

Another example, I open two launderettes, one is in a shop and is manned by a nice lady, the other is an automated one outside of a supermarket (see link for example) https://www.cwmbranlife.co.uk/outdoor-laundrette/ so here, I'm clearly in the launderette business, but two very different trades with different risks, I'd argued I'd need two separate companies as the manned shop has different risks to the unmanned one (more vandalism/theft) whereas the shop has no cash on premises overnight, and offers a service of folding/drying to allow you to go about your business, whereas the outside setup you have to hang around and fold your own. So that is why I split the trades...I didn't split to avoid VAT ;) I had genuine business reasons to set it up as two entities, as they're quite different trades/different risks when you look at it.

Trust you can see that its better to start from a position of "why I need separate trades" rather than saying "I think they are separate enough"

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By fozia
31st Jan 2022 10:45

I have a similarish predicament. My client was in full-time employment, but also had self-employment income as a registered homeopath and university lecturing. She has left employment and open a health food shop, which is trading as a vat registered limited company. Initial thoughts were to put all 3 trades via the company to keep things simple, but my dilemma is that lecturing at uni is a vat exempt activity so long as it is done by an individual, the second it is "billed" by the company it is standard rated, so i am inclined to keep it outside of the health food company. However, the homeopathy, may be done in a private room in the health food store. Can that be argued as being separate from the limited company, if she carries on trading as a sole trader (separate bank accounts from limited company)?

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