Setting up a pizza van with an existing restaurant

[Creagle]

Hello

I am running a small single unit pizza restaurant with a turnover circa £500K in Lancashire. I have been running this for 5 years and the business is now well established with an excellent local reputation.

Looking to expand the business and having talked with my accountant we are considering setting up a new second business to purchase and run a pizza van. Setting it up as a separate business to stay under the VAT £90,000 VAT threshold for as long as possible.

My accountant has advised this is ok as long as the trading name is different. But obviously we want to benefit from our existing local reputation as much as possible. Therefore my question is how close to the sun can we fly. Clearly a different trading name, I've been told using the same staff and buying the ingredients and dough balls from the existing restaurant business will be possible so will having a link on our website to a separate website for the van but we have to make the distinction that they are different businesses e.g. "We recommend this pizza van for catering your event". Does all this sound above board and unlikely to be an issue for HMRC?

My accountant advised we may successfully trade like this for several years but the risk is HMRC could at any point do an audit and decide they are actually in fact the same business and backdate VAT due, how likely is this? What do we need to do to avoid this happening?

Do I need to consider minute details, e.g. the restaurant has branded pizza boxes, if we used these on the van would that be crossing the line? What about the staff wearing the restaurant uniform?

Thanks in advance for the sharing of relevant experiences and expertise.

 

[Newchodge]

Have you asked your accountant why they think the businesses can be separate? It sounds the same business to me!

 

[JEREMY HAWKE]

Why is it such a big deal staying under the vat limit
Is this venture going to be a start-up to make profit and grow or just an unusual attempt to have a business with a ceiling because of the the vat limit

 

[Creagle]

Why is it such a big deal staying under the vat limit
Is this venture going to be a start-up to make profit and grow or just an unusual attempt to have a business with a ceiling because of the the vat limit

I suppose it is such a big deal because until you exceed 90K in a 12 month period you do not pay any VAT. 20% of any amount of money is considerable. Given it seems feasible to at least start under the VAT threshold it is well worth saving the 20%. e.g. if I could get the same product from a different supplier for 20% less I wouldn't think twice.

To put into perspective as you may be unfamiliar with catering the main period for bookings is April to October, this is further reduced as most events are weekends only. Many events are weather vulnerable. Therefore roughly 50 prime days to make money a year which you hopefully have good weather for. So would in the first year need to do circa £2000 per day, every of the 50 days. The current operator will take an event with a minimum of £500 revenue from it for the day. A good day for current operator is £2000. They are therefore currently well under the VAT threshold.

This will be my first time running a mobile catering business. I do not expect in the first year to be tremendously successful, I would indeed hope after a few years to expand and have multiple vans at which point certainly would be over the VAT threshold.

Please if anyone has advice on the feasibility of this being viewed as a separate business in HMRC's eyes weigh in. Many thanks in advance.

 

[Mark T Jones]

The simple answer is that you can't stop them from investigating you - to ensure you dont fail the investigation you need to ensure that you meet all the conditions - here is a simple synopsis

VAT - What is disaggregation of a business? | Crunch

Disaggregation is when business owners try to avoid charging VAT by splitting a business to ensure each operates under the VAT registration threshold.

www.crunch.co.uk

How likely are they to investigate you? If they want to, 100%

The best way to avoid problems is to do things properly

 

[Creagle]

The simple answer is that you can't stop them from investigating you - to ensure you dont fail the investigation you need to ensure that you meet all the conditions - here is a simple synopsis

How likely are they to investigate you? If they want to, 100%

The best way to avoid problems is to do things properly

Thanks for the really helpful link, having read it I think it's worth me giving HMRC a call to get their input as there are multiple links that would exist. When you say "The best way to avoid problems is to do things properly" do you mean my idea sounds like it falls foul of their rules?

 

[Newchodge]

Your initial post said

Setting it up as a separate business to stay under the VAT £90,000 VAT threshold for as long as possible.

If that is the reason you are setting it up as a separate business, you probably cannot do it.

 

[BusterBloodvessel]

Firstly, Lancashire pizza lover here. Let us know where you're based, I can add you to my long-list of places to go out and try!

Secondly, I'm afraid in my eyes you would be flying wayyyy too close to the sun here. I looked into this extensively previously in a very similar situation - we had a pie/sandwich shop but then also had a separate van for events but serving the same food under the same name.

If, as you say, staff are wearing the same uniform, using the same pizza boxes, buying inter-company and you by your own admission want to benefit from your local reputation.... then as far as anyones concerned these businesses will be one and the same. A line on your website "we recommend the van for private events", won't cut it I'm afraid.

Sorry to be the bearer of bad news, can understand why you'd want to do it (I was the same!) but it was deemed just not possible. And I read/heard about cases where people were found guilty of VAT disaggregation and they had a much more compelling argument than you've got here.

 

[Gecko001]

I have seen burger vans and ice cream vans, but a pizza van? How does it work? A slice of pizza is just not filling enough for most people, and a whole pizza seems too big and clumsy.

 

[Creagle]

Firstly, Lancashire pizza lover here. Let us know where you're based, I can add you to my long-list of places to go out and try!

Secondly, I'm afraid in my eyes you would be flying wayyyy too close to the sun here. I looked into this extensively previously in a very similar situation - we had a pie/sandwich shop but then also had a separate van for events but serving the same food under the same name.

If, as you say, staff are wearing the same uniform, using the same pizza boxes, buying inter-company and you by your own admission want to benefit from your local reputation.... then as far as anyones concerned these businesses will be one and the same. A line on your website "we recommend the van for private events", won't cut it I'm afraid.

Sorry to be the bearer of bad news, can understand why you'd want to do it (I was the same!) but it was deemed just not possible. And I read/heard about cases where people were found guilty of VAT disaggregation and they had a much more compelling argument than you've got here.

Thanks very much for your help! The name is Aquila Wood Fired Neapolitan Pizza in Lancaster.

What you have said all makes sense, and backs up the Disaggregation link sent by Mark.

Confusingly, a phone call with HMRC VAT helpline (0300 2003700) was contradictory to the advice here. They said what you have described is fine, you can setup under a different VAT number. I went as far as explaining I don't expect the business to go over the VAT threshold and this is the reason for doing it, which they said is fine. Using the same staff they said is fine as is ingredients and even recommending it on our website, all as long as it's a different business name. I did ask for it in writing but they said they cannot give that just refer to online.

 

[Newchodge]

Thanks very much for your help! The name is Aquila Wood Fired Neapolitan Pizza in Lancaster.

What you have said all makes sense, and backs up the Disaggregation link sent by Mark.

Confusingly, a phone call with HMRC VAT helpline (0300 2003700) was contradictory to the advice here. They said what you have described is fine, you can setup under a different VAT number. I went as far as explaining I don't expect the business to go over the VAT threshold and this is the reason for doing it, which they said is fine. Using the same staff they said is fine as is ingredients and even recommending it on our website, all as long as it's a different business name. I did ask for it in writing but they said they cannot give that just refer to online.

HMRC advice can occasionally be very accurate. .......

 

[Paul Kelly ICHYB]

If you do decide to separate, make sure that you tuck the potential VAT amout to one side plus a bit more for a fine. Put 25-30% in a savings account, just in case.

I would also make sure that you have the accountants advice in writing.

On the basis that you will be sourcing everything from the parent business and probably using the same trading name, this is too close for my liking. I bet the director/s & shareholder/s will be the same?

 

[Creagle]

If you do decide to separate, make sure that you tuck the potential VAT amout to one side plus a bit more for a fine. Put 25-30% in a savings account, just in case.

I would also make sure that you have the accountants advice in writing.

On the basis that you will be sourcing everything from the parent business and probably using the same trading name, this is too close for my liking. I bet the director/s & shareholder/s will be the same?

The current business director is myself only. I can make my wife the sole director of this new business but not if it will put her in potential legal harm's way which by the sounds of things it will.

I'm not trying to skirt around the law, if we have to register that is fine. But if we can legally make some changes, e.g. different website and trading name and it would all be above board then 100% I want to do this to avoid VAT for as long as possible.

I called HMRC again this time to record their answer for future reference, however I was given a far less clear answer than before and instead told to email [email protected] who can decide if it's allowed to be a separate business. Apparently also when registering for a VAT number you will be asked if there's an association to another VAT registered business and for the details of the business which they will then look into. On the phone, I was told once they've made this decision it should be final, i.e. no audit years down the line deciding it was the wrong decision - of course assuming everything stays the same in terms of keeping them separate and not blurring the lines any closer by things like starting to use the same staff uniforms, refer to it as the same business etc.

Fully understand the logic between stashing away 25%-30% for future liabilities. But I don't want to be loosing sleep over this either, frustrating HMRC cannot give a clear cut answer! Perhaps the email route will render a definitive answer - will keep the forum posted.

 

[Paul Kelly ICHYB]

I'm not trying to skirt around the law

You are!

There is nothing wrong with trying, especially if your accountant is prepared to pay your fine if he is wrong!

Apparently also when registering for a VAT number you will be asked if there's an association to another VAT registered business and for the details of the business which they will then look into

So? You are not looking at registering, yet!

If they deem that you have been separating, they will more than likely come after you.

Yes, we all want to make an extra few quid, but if you want to sleep peacefully, don't do it!

 

[Gecko001]

Perhaps this is how restaurants who do occasional outside catering, or chip shops who have a burger van which do events at the weekend, make it work financially. Costs are dramatically reduced.