Opening a 2nd Hair Salon - potential VAT issues

[h2nty]

We own and run a Hair Salon on leasehold and recently have tried to buy the property to secure the future of the business and have peace of mind, but have been messed around by the owner who is now not selling . The business was set up as a limited Company and is currently not VAT registered.

We are currently in the process of buying a property 15 miles away to set up a brand new salon which will be a new Ltd company, with a slightly different trading name but will have the same name as our first salon. I am hoping that we can still brand it the same way as our existing salon but are we allowed to to this? Legally they are two separte businesses......so are there any VAT impliactions if we brand them the same?

Can we employ some of the staff on a part time basis at the new salon and keep them employed part-time in our other?

Many thanks

 

[kulture]

Go have a long talk with an accountant. It really does not sound like a seperate business if you share staff, have the same name and branding, and no doubt share suppliers etc etc.

 

[Tax-UK]

Vat implications- as long as the combined turnover is within the vat threshold you don't need to worry. If above threshold, HMRC will take the view that for vat purposes both businesses are actually one business run by the same person separated by artificial mechanisms and will require that you register both businesses for vat

 

[Paul Kelly ICHYB]

Yup - same business, same name, same owners?

The VAT man will probably treat them as one business, for VAT purposes.

 

[h2nty]

Can i not set up a new company, toatlly different name, in my name only......resign as a director from our first salon? Then it would be totally separate from first co. and just run it independently? Would just employ my wife to work in the new Salon part-time.....?

Can this be done?

Thanks

 

[KateCB]

I think that if you were using a similar name, branding and sharing staff, the VAT man would still see it as being artifically seperated; if it was independent, just you, new staff, new name, new branding, then it might be feasible....

I have a friend who owns a reflexology training school, not VAT registered, she then bought premises and opened a holistic therapy centre; When the therapy centre hit the threshold, she registered for VAT, then came the inspector who fined her for not registering sooner, as well as claiming 'unpaid VAT' as they considered the two as one business as it was the same owner, same name on the accounts, companies house records, registered address records and therefore they added the training school finances to the therapy centres

 

[MyAccountantOnline]

Go have a long talk with an accountant. It really does not sound like a seperate business if you share staff, have the same name and branding, and no doubt share suppliers etc etc.

I second that - very good advice

 

[David Griffiths]

I think that if you were using a similar name, branding and sharing staff, the VAT man would still see it as being artifically seperated; if it was independent, just you, new staff, new name, new branding, then it might be feasible....

I have a friend who owns a reflexology training school, not VAT registered, she then bought premises and opened a holistic therapy centre; When the therapy centre hit the threshold, she registered for VAT, then came the inspector who fined her for not registering sooner, as well as claiming 'unpaid VAT' as they considered the two as one business as it was the same owner, same name on the accounts, companies house records, registered address records and therefore they added the training school finances to the therapy centres

That, on the face of it, is a completely separate issue from artificial separation. From what you are saying the two businesses had the same owner, who didn't realise that all business activities counted towards the VAT registration threshold

 

[David Griffiths]

I'm going to go against the general flow of opinion here, and say that if things are set up properly then the businesses could be set up in a way that would not fall foul of the artificial separation rules.

There are a number of reasons for this, not least that the businesses are 15 miles apart. If one is company is owned by the OP and the other by his wife it would not be a case that "one person has a controlling influence in anumber of entities which all make the same type of supply in diverse locations".

I do think, however, that sharing staff (including husband or wife) between the two businesses would not be a good idea as it would blur the distinction and make the claim that the businesses are separate harder to sustain.

The other factor that most people seem to be ignorant of is that if HMRC come to a conclusion that the businesses have been artificially separated they can make a directive that they must be treated as one business in future. That direction cannot be backdated. (On the first occasion - if you are daft enough to ignore the direction and try to separate them again, then the second time it is backdated, which is fair enough)

Sometimes HMRC try to get round this by ignoring the artificial separation rules and claiming that the two businesses are so closely linked so that they were really a partnership and should have registered as such in the past - that can be backdated. However with separate companies, and different owners the chances of that being attempted, let alone succeeding, are remote. It's been used where there is a claim that the catering in a pub is a separate business, and even then it's often a case of doing things properly so that the customers understand that it's a different person providing the food - all too often these things fail because of lack of attention to detail.

So effectively there is nothing to lose by going ahead as separate entities. They will be separate for VAT unless HMRC come along, link the businesses and issue a directive. That's by no means certain, even if they do discover the somewhat tenuous links will only apply to future trading, so you don't have to pay on trade before that date.

I'd emphasise the point about keeping staff separate, and above all not employing each other. I'd also emphasise that taking advice off a forum also has its risks - you really need to consult somebody who can give advice based on a full fact find in your particular circumstances, and who does understand the rules.

 

[h2nty]

David....thanks you your advice!

 

[Strontium Dog]

If one is company is owned by the OP and the other by his wife it would not be a case that "one person has a controlling influence in anumber of entities which all make the same type of supply in diverse locations".

Is it really necessary to have the comanies owned by separte people if they are effectively separated in other ways?