Joint Purchase

[Scuba Guy]

Firstly, thank you in advance for any guidance or help you can give following on from reading this question. Note: I am new to the Ltd company dealings.

I am the only director of a small limited U.K. company that is Vat reg. I have a friend who has agreed to split the initial cost of some products we’re looking to import. We will then retail these products and everything will be split 50-50. The question is: what is the best way to receive the 50% of funds from him to avoid having to charge him VAT? He is not VAT reg. Is it best for him to become a director or a shareholder? Is there a process I need to follow or can he simply transfer the initial money in my account? Please any help would be great. If you need more context - please ask.

 

[Scalloway]

If your businesses are separate I don't see any way to avoid VAT if he wants to buy stock from you. Making him a director or shareholder in your company will make no difference.

 

[Scuba Guy]

Hi. Thanks for your response. He is currently a sole trader. I am asking whether the best option is to ask him to become a director or shareholder. But is there a way to make it 50-50 on only particular transactions?

If your businesses are separate I don't see any way to avoid VAT if he wants to buy stock from you. Making him a director or shareholder in your company will make no difference.

 

[Scalloway]

I am asking whether the best option is to ask him to become a director or shareholder

That has no effect whatsover.

But is there a way to make it 50-50 on only particular transactions?

Not that I am aware of. But check back here again just in case somebody can come up with a brilliant solution.

 

[Mr D]

You are vat registered - you get to charge him like you would anyone else. Him not being vat registered just means he cannot claim the vat back. He will have been paying vat probably all his life anyway.
Only way to not charge him vat is for your business to deregister before ordering - if it's below threshold.


You did figure out what 50 / 50 split meant when discussing it? Whether it's excluding vat or including vat. Would have been better to negotiate a total price instead.

 

[Scuba Guy]

You are vat registered - you get to charge him like you would anyone else. Him not being vat registered just means he cannot claim the vat back. He will have been paying vat probably all his life anyway.
Only way to not charge him vat is for your business to deregister before ordering - if it's below threshold.


You did figure out what 50 / 50 split meant when discussing it? Whether it's excluding vat or including vat. Would have been better to negotiate a total price instead.

Thanks for your response. For example, if the stock costs £20,000 - £10,000 each. Can he not just become a shareholder and invest £10,000 into the business? Or a director but bring along with him £10,000 to put into the company?

 

[Mr D]

Thanks for your response. For example, if the stock costs £20,000 - £10,000 each. Can he not just become a shareholder and invest £10,000 into the business? Or a director but bring along with him £10,000 to put into the company?

Yes he can do that - but that in itself doesn't do anything about your company selling the stock.

What you do about your company's ownership or running of the business has no bearing on someone else buying the stock. Whoever your company sells it to you will have to charge VAT as appropriate.

 

[STDFR33]

Fess up. You’ve spoken to the drunk guy in the pub giving out free tax advice haven’t you?

The simple solution is for your friend to purchase the stock and sell you half.

 

[Hash and Bash]

The simple solution is for your friend to purchase the stock and sell you half.

That won't really work out well for you as your friend is not vat registered and any import VAT he pays cannot be recovered by him or you.

 

[Scuba Guy]

I don’t understand all of this - there must be a way as how do businesses go together and form a partnership? All we want to do is both buy some stock through my company and sell the stock to the general public, and once it is all sold we split the profits? I will be responsible for the VAT. Surely I would just sell him £10,000 GBP worth of shares and have an agreement then 3 months later give him the 10k back and any profit? It’s an investment from his part to help grow my business.

 

[STDFR33]

I don’t understand all of this - there must be a way as how do businesses go together and form a partnership? All we want to do is both buy some stock through my company and sell the stock to the general public, and once it is all sold we split the profits? I will be responsible for the VAT. Surely I would just sell him £10,000 GBP worth of shares and have an agreement then 3 months later give him the 10k back and any profit? It’s an investment from his part to help grow my business.

Can you not purchase and sell through your company and get your friend to invoice you for the ‘commission’ on their sales?

 

[Ian J]

I don’t understand all of this - there must be a way as how do businesses go together and form a partnership?

Invariably both companies would be vat registered so this problem doesn't arise

 

[Scuba Guy]

So how do companies like seedrs work etc? Where small shareholders can make an investment in a start up business for a certain %?

 

[Mr D]

I don’t understand all of this - there must be a way as how do businesses go together and form a partnership? All we want to do is both buy some stock through my company and sell the stock to the general public, and once it is all sold we split the profits? I will be responsible for the VAT. Surely I would just sell him £10,000 GBP worth of shares and have an agreement then 3 months later give him the 10k back and any profit? It’s an investment from his part to help grow my business.

Nothing stopping you doing business together and splitting profits.

Just you will do it as a VAT registered business and they'll do it as a non vat registered business.

What you are suggesting is for you to buy the stock, you to sell it and then you to split the profits. You can do all that without him buying shares.
And your company paying a dividend - which each of you would be taxed on if done your way!
Cheaper not doing it that way.

 

[Mr D]

So how do companies like seedrs work etc? Where small shareholders can make an investment in a start up business for a certain %?

They buy shares in the business and expect at some point to reap the rewards? But not relevant to what you want to do with joint venture.

 

[Scuba Guy]

Nothing stopping you doing business together and splitting profits.

Just you will do it as a VAT registered business and they'll do it as a non vat registered business.

What you are suggesting is for you to buy the stock, you to sell it and then you to split the profits. You can do all that without him buying shares.
And your company paying a dividend - which each of you would be taxed on if done your way!
Cheaper not doing it that way.

I really appreciate your help and apologies for all of the questions. Is there a way where that £10,000 initial outlay from his part can be paid into my business Without VAT? He is not VAT registered. I am.

 

[The Byre]

This whole deal sounds like a disaster waiting to happen - business deal with a friend? Not VAT registered?

You buy the £20k's worth of gear, sell half to him and say "There you go kid. Knock yourself out and good luck on eBay!"

Trying to do deals with so-called businesses that are not VAT registered is always a PITA.

 

[Mr D]

I really appreciate your help and apologies for all of the questions. Is there a way where that £10,000 initial outlay from his part can be paid into my business Without VAT? He is not VAT registered. I am.

Yes he can invest in your business. Does not make a difference to his business and complicates matters for yours.
You can later return his £10K back to him. Though without legal agreements he's taking a risk.

Doesn't achieve much though - what you want to do and what you can do are different things.

Just deal with him the same way you do other businesses - you charge vat. You are trying to vastly complicate matters for little gain.