Artificial separation of VAT

[japancool]

I currently have a single ltd company. We sell both new goods and second hand goods, the latter of which are bought from private individuals.

Would it be justifiable to separate out these two business? The new goods company would be VAT registered, but the second hand business would not (at least for the moment). The two businesses sell the same products, the only difference being the source.

It seems like it would probably be considered artificial, but I thought I'd ask the question. And yes, Wavejumper, I WILL ask my accountant, when she gets back from annual leave.

 

[Daybooks]

Your scenario sounds exactly the purpose behind the artificial separation rules.

 

[Ziggy2024]

What's the reason to separate the 2? If it is just because of VAT then I think you have your answer.

Are you using the margin scheme for the second hand goods?

 

[japancool]

What's the reason to separate the 2? If it is just because of VAT then I think you have your answer.

Are you using the margin scheme for the second hand goods?

Yes.

 

[lesliedocherty]

My approach is to imagine I was in a vat investigation and asked to explain what I had done and why, hoe does it sound?

 

[MyAccountantOnline]

I currently have a single ltd company. We sell both new goods and second hand goods, the latter of which are bought from private individuals.

Would it be justifiable to separate out these two business? The new goods company would be VAT registered, but the second hand business would not (at least for the moment). The two businesses sell the same products, the only difference being the source.

It seems like it would probably be considered artificial, but I thought I'd ask the question. And yes, Wavejumper, I WILL ask my accountant, when she gets back from annual leave.

The first question to ask is why? If it's to avoid VAT that's instantly artificial separation.

Your accountant is the best person to advise you on this as she will have all he relevant facts, but for an existing business it's generally failry hard to justify a reason which doesn't involve avoiding VAT.

 

[japancool]

The first question to ask is why? If it's to avoid VAT that's instantly artificial separation.

Well, primarily, it's to make profit/loss and management of this part of the business easier to manage. I want to turn it over entirely to someone else to manage, and I need to see separately how that side of the business is performing, since everyone and their dog appears to want to sell us stuff atm. I could do all of that within the current structure of course, but it's more of a pain. In addition, as it stands at the moment, it also means a duplication of our catalogue on the website, as I have to have a listing for the new item, then another listing for a pre-owned version of the same item.

It might be worth doing and registering the new company for VAT as well. I assume that is no problem? Although it does mean submitting another set of VAT returns, but then again, I'd have to submit separate accounts anyway. But they'd be a lot simpler to do.

 

[MyAccountantOnline]

Well, primarily, it's to make profit/loss and management of this part of the business easier to manage. I want to turn it over entirely to someone else to manage, and I need to see separately how that side of the business is performing, since everyone and their dog appears to want to sell us stuff atm. I could do all of that within the current structure of course, but it's more of a pain. In addition, as it stands at the moment, it also means a duplication of our catalogue on the website, as I have to have a listing for the new item, then another listing for a pre-owned version of the same item.

It might be worth doing and registering the new company for VAT as well. I assume that is no problem? Although it does mean submitting another set of VAT returns, but then again, I'd have to submit separate accounts anyway. But they'd be a lot simpler to do.

I think you'd have a hard job persuading HMRC that you split the businesses so you can monitor them better and deregistered for VAT and it wasnt artificial separation, but as mentioned your accountant is the one to ask on this.

If it's really so that you can monitor the business better you dont need to split the business - your accountant should be able to help you set up systems and record keeping to do this.

 

[japancool]

I think you'd have a hard job persuading HMRC that you split the businesses so you can monitor them better and deregistered for VAT and it wasnt artificial separation, but as mentioned your accountant is the one to ask on this.

If it's really so that you can monitor the business better you dont need to split the business - your accountant should be able to help you set up systems and record keeping to do this.

But I assume if I also registered the new company for VAT, there wouldn't be a problem?

 

[MyAccountantOnline]

But I assume if I also registered the new company for VAT, there wouldn't be a problem?

No but why incur additional costs setting up and running a second company when a good record keeping system will enable you to monitor both parts of the business if thats the sole reason you are looking at splitting them.

 

[japancool]

No but why incur additional costs setting up and running a second company when a good record keeping system will enable you to monitor both parts of the business if thats the sole reason you are looking at splitting them.

Well, like I said, there are other potential issues like who manages that side of the business and future potential ownership, but it's not really worth splitting out at the moment anyway. If it becomes big enough, I'll look at it again.