Can a VAT saving be made this way?

[drounding]

Can a VAT saving be made this way?

Company A is not VAT registered and is a sole proprietor business, 90% of its sales come from services rather than product sales and it has little cost of sales and no stock.

Company B is a VAT registered limited company and has two directors, one of which is the sole proprietor of Company A. The two directors are husband and wife. Company B is currently dormant and wants to restart trading.

Company A wants to start selling some products but requires a VAT number to be able to purchase the products from the suppliers (many suppliers insist on this and to be considered a creditable company it is needed). If it were to register for VAT then all of its service business would be also liable for VAT.

Company B agrees to purchase the goods from the suppliers and resell the goods on to Company A at cost. Company B would pay the neccessary VAT due to HMRC on the transactions.

This means that although Company A is paying VAT on the product purchases to Company A it is not liable for VAT on its service business because it is not registered for VAT.

Is this OK?

[Aspect Investments]

As long as company B charges company A VAT then there is no problem.

[David Griffiths]

As long as company B charges company A VAT then there is no problem.

I'm not too sure about that.

There are rules about artificial separation of two businesses to save VAT. In this case the two businesses will be owned by connected people, trading in the same line of business and one is registered and the other is not. The registered business will be buying and selling at no profit - where is the commercial justification for that? How long before HMRC notice that for every period the input tax and output tax are the same and decide to come looking at things?

It may be that they will accept that the company is merely used as a method to facilitate purchases from people who won't deal with non registered entities. It may be that they won't, and will say that as it's not an arm's length transaction, a different value must be substituted. Worst case could be that they direct that the businesses must be treated as single registration.

It's not that simple

[drounding]

Would the same apply then if the service and sales businesses were separated - such as service businesss through Company A and product sales through Company B? The difference would be that VAT would also be due on the full sales price as opposed to the cost price of the products. I guess the problem is that they may also be seen as the same entity as they would share the trading premises.

This is not an attempt to not pay VAT, just to minimise the impact on the existing service business which pays the rent as well as get around the fact that suppliers will not supply to companies without a VAT number.

[Wild Goose]

Would the same apply then if the service and sales businesses were separated - such as service businesss through Company A and product sales through Company B? The difference would be that VAT would also be due on the full sales price as opposed to the cost price of the products. I guess the problem is that they may also be seen as the same entity as they would share the trading premises..

Yes, you might encounter the same split business problem David mentioned if you run services through one company and product sales via another. It all depends upon whether HMRC view it all as one entity.


This is not an attempt to not pay VAT, just to minimise the impact on the existing service business which pays the rent as well as get around the fact that suppliers will not supply to companies without a VAT number.

In which case why not buy through the non-VAT registered Company A, leave Company B dormant, but give Company B's VAT registration number to your suppliers? Your suppliers want a VAT number, and so they shall get one. If there's no imports involved I can't see why anyone should care whose VAT number your suppliers have recorded against Company A in their Sage program. Surely it's nothing more than a matter of keeping your suppliers happy. Hitler was once asked why he had signed the Munich agreement: "Because Herr Chamberlain wanted me to sign it. It made him happy".

[David Griffiths]

In which case why not buy through the non-VAT registered Company A, leave Company B dormant, but give Company B's VAT registration number to your suppliers? Your suppliers want a VAT number, and so they shall get one. If there's no imports involved I can't see why anyone should care whose VAT number your suppliers have recorded against Company A in their Sage program. Surely it's nothing more than a matter of keeping your suppliers happy. Hitler was once asked why he had signed the Munich agreement: "Because Herr Chamberlain wanted me to sign it. It made him happy".

Good thinking!

[Zeno]

Would this not be uncovered if the supplier checks the VAT number?

Right enough, I am not sure how much detail they give but I am pretty sure they will at least say that number does not belong to that business.

[Billmccallum]

In which case why not buy through the non-VAT registered Company A, leave Company B dormant, but give Company B's VAT registration number to your suppliers? Your suppliers want a VAT number, and so they shall get one. If there's no imports involved I can't see why anyone should care whose VAT number your suppliers have recorded against Company A in their Sage program. Surely it's nothing more than a matter of keeping your suppliers happy. Hitler was once asked why he had signed the Munich agreement: "Because Herr Chamberlain wanted me to sign it. It made him happy".

Surely you would want to add a caveat, that your comment was "tongue in cheek", "you don't know what your talking about" and "you don't advocate fraud & deception on a public forum"

Note for OP, don't take Wild Goose's advice.

[Aspect Investments]

The 2 businesses would have to be completely seperate, and you would have to charge business A a reasonable profit plus vat. If this is not an option then you are going to run into trouble when company B does its returns.

[mc612]

I am new to VAT, but understand profits(!), if you are looking to add a 20% mark-up on the products you are looking to sell from Company A, why not buy with B, add 10%, sell to A then add the other 10% and you make your total 20% profit

Ok you will have to pay tax on on the proifits of Co B, but that will be marginal of overal profit

Just a thought...

[Wild Goose]

Surely you would want to add a caveat, that your comment was "tongue in cheek",
Ok. Caveat: the bit about the Munich Agreement was tongue-in-cheek.


"you don't know what your talking about"
You're. Spell responsibly, Bozo! :p


and "you don't advocate fraud & deception on a public forum"
The OP wants to give his suppliers a VAT number to enhance his street-cred. If you want to be prissy about it that could be viewed as pulling the wool over the suppliers' eyes. Not unlike saying "the cheque's in the post". Fraud? Deception? Not on your life. :eek:


Note for OP, don't take Wild Goose's advice.
Well the alternative would be to register Company A for VAT, or alternatively go through a risky and complex procedure of purchasing via company B, the downside of which has been highlighted by others.