Two businesses and VAT (sole trader and partnership)

[Gazhelp]

Hi,

As a sole trader I am not registered for VAT. I act as an entertainer/musician and sound engineer and earnings are well below VAT threshold.

I started a partnership last year installing computer equipment and that has been Voluntarily VAT registered and have been doing my own VAT returns.

I am worried now from what I have read that all income earned by myself should have had VAT applied to it.

Also, my business partner is leaving soon, to carry on his own separate business, and then I will have two separate businesses, one registered for VAT and one not. I presume this is not possible from what I have read so far on the net - as I would then be registered for VAT as a sole trader for computer business and but NOT registered for VAT for entertainment business.

Thanks for any help in advance.

Gary.

[David Griffiths]

I don't think that you have any problems with the current set up, and do not have to account for VAT on your earnings as an unregistered sole trader.

It doesn't seem to me that the businesses are so similar to trigger HMRC's interest as far as artificial separation is concerned, and in any event if they make a direction that they are to be treated as one business that cannot be backdated the first time that they do this.

You are correct that you may have a problem if your partner leaves. However, it is the partnership that is registered, not the business, and you may not have to register as an individual. You don't say if the combined turnover of the two businesses is such that registration would be compulsory >£67k at present)

If the combined turnover is below that limit, then the partnership would simply deregister. It would have to account for VAT on stock and other assets held at that time. (This, in my opinion, wouldn't be treated as a transfer of a going concern, because you as the transferee are neither VAT registered now or would become liable to be VAT registered as a consequence of the transfer)

If you wanted to keep the computer installation business and have it VAT registered, you would have to trade through a separate entity from your sole trade. That might mean a partnership with somebody else, or setting up a limited company to run the business. I presume that your customers for this business are VAT registered, so it's beneficial for you to register.

[JGOffshore]

You should have no problems. HMRC are really only looking for people providing the same or very similar services under two different business types.

For example a few years ago painters and decorators would do work for private individuals who couldn't recliam VAT as sole traders but set up Limited Companies which would register for VAT and so when working for VAT registered businesses they would carry out the work as a company. It was legal till Customs & Excise (as they then were) twigged

[Gazhelp]

Thanks for the info.

As it stands it looks like I am OK then running the two as separate businesses.

So the next problem is that I have found out for sure that my business partner is going to be leaving. So that would mean that I would be running two businesses as a self employed person, but would just want one registered for VAT (computer business as it needs VAT status).

To get around that I could always add my wife as a partner before my current business partner leaves. She does a lot of the admin work on the IT side of things anyway.

From what I have read, I presume I cant run as s sole trader two businesses - one that is VAT registered and one that is not?

(Incidentally I was talking to someone the other day who is a voluntary VAT registered sole trader and he earns from another type of work about 7500 a year which he doesn't pay (or charge) VAT on. He's not in partnership, and his chartered account just puts the extra 7500 down as other income on his tax return! All expenses incurred in earning the 7500 are claimed through main business. I am guessing thats prob not correct?)

Gary.

[JGOffshore]

Thanks for the info.

As it stands it looks like I am OK then running the two as separate businesses.

So the next problem is that I have found out for sure that my business partner is going to be leaving. So that would mean that I would be running two businesses as a self employed person, but would just want one registered for VAT (computer business as it needs VAT status).

To get around that I could always add my wife as a partner before my current business partner leaves. She does a lot of the admin work on the IT side of things anyway.

From what I have read, I presume I cant run as s sole trader two businesses - one that is VAT registered and one that is not?

(Incidentally I was talking to someone the other day who is a voluntary VAT registered sole trader and he earns from another type of work about 7500 a year which he doesn't pay (or charge) VAT on. He's not in partnership, and his chartered account just puts the extra 7500 down as other income on his tax return! All expenses incurred in earning the 7500 are claimed through main business. I am guessing thats prob not correct?)

Gary.

It is the person (real person or legal person such as a company) who is registered for VAT not the business or trade. So, yes if you personally register for VAT then every business you carry out as a sole trader needs to charge VAT. It sound's like your friend is not accounting for VAT properly (unless of course he too has his wife or someone else as a "sleeping" partner. Or he could actually be an employee. People in pubs don't always tell the full story!

Once your partner leaves then the partnership ceases. You could start a new partnership with your wife but it may be simpler to register as a limited company. Another option would be to set up a Limited Liability Partnership (LLP) with your wife as a 1% partner (or maybe more). An LLP is a separate legal person but unlike a limited company an LLP does not pay any corporation tax and all that happens is that the profits of the LLP flow through to the members of the partnership who account for in in their own returns. An LLP can be easier and simpler to operate than a company and also has the benefit of limited liability.