Selling on another person's premises

[mooncreature]

My sister runs a beauty salon as a sole trader and she has a lot of people in her reception every day. I've found suppliers of organic soap products and would like to start selling them on her premises. She's happy for me to do this (because the products complement her business) and she's happy for me to benefit from the profit (because, well, she's my sister!) but she'd prefer that the sales didn't end up on her books as it doesn't suit her at the moment to go near the VAT registered threshold.

My question is: is it possible for me to trade as a sole trader selling soap products on her premises and keep our finances separate (effectively having two tills on the same premises? I have a business name in mind and I have ideas about how to grow (I'm working on a website and plan eventually to produce from scratch and sell my own range of products). For the moment though it would be a great way to raise some cash by selling products in her premises.

Any advice or information would be most welcome. Ta

 

[TotallySport]

not sure on the tax side sorry, but your going have trouble here, its your sisters business premises, if she see's it doing well, what happens if she then wants you to no longer sell them and she do it?

Your now going to say its my sister and it won't happen, but it will.

I also think your going to face trouble is you want to put "your shops" branding in her shop, and two tills will be a pain for staff and customers.

You might be better looking at going into partnership, were you both look after one side of the business.

 

[mooncreature]

Lordy! I'm not sure what kind of Machiavellian families you're used to but in mine we don't shaft each other like that! Also I've already bought and programmed a small till to do the job and the staff are happy with it and I have no plans at this early stage to employ any sort of branding in her premises.

 

[Sproston]

Not sure on the tax side sorry, but TotallySport is right.

Don't get me wrong, I don't know the relationship between you and your sister and it's not my business, but if you do go into it; get a contract drawn up. I've worked with family and close friends before having not done so, and I now regret it. It may seem a little extreme, but especially if you're looking at this a main source of income I'd say it's a necessity.

Again, I won't comment on the tax side as it's certainly not something I'd be willing to give advice on; but from a pragmatic side have you considered the added inconvenience of two tills. In a beauty salon, things like lotions, soaps and so on are generally impulse purchases. You're not going there with the intention to buy soap, you're going there to have your beauty treatments done. If you see something at the till you'd like, brilliant!

I speak from experience, it happens to me at the hairdressers. I just get my shampoo, gel and all that from tesco or boots. If I was in the hairdressers/barbers and saw something that caught my eye, I'd probably buy it. If I found out it *had* to be two seperate transactions on two separate tills...I might not bother, especially if I was in a rush.

Maybe I'm just lazy though .

 

[arcon5]

Will you be selling the items yourself or will her staff be completing the sales?

You could possibly work out an agreement whereby you pay her X amount per week/month in rent - which she will obviously have to declare.

A quick telephone call to the tax office should solve this one though

 

[mooncreature]

Will you be selling the items yourself or will her staff be completing the sales?

You could possibly work out an agreement whereby you pay her X amount per week/month in rent - which she will obviously have to declare.

A quick telephone call to the tax office should solve this one though

Her staff will be completing the sales. We'd considered an arrangement like that, where she lets me rent selling space for a token amount per month, but I'm unsure about the legal and tax issues

Sproston: the products are very much impulse buy items - the packaging is very eye catching and they're the sort of thing people pick up and sniff and poke at (and hopefully then buy)

 

[TotallySport]

Lordy! I'm not sure what kind of Machiavellian families you're used to but in mine we don't shaft each other like that! Also I've already bought and programmed a small till to do the job and the staff are happy with it and I have no plans at this early stage to employ any sort of branding in her premises.

lol, read the threads on the forum and its full of people who did similar things to what your thinking of now and it all goes pair shaped due to trust and not getting everything in writting at the start.

Look at it this way, you have a beaty salon, and your sister says hey you have a lot of customers and over heads and I just want to sell a few beauty products in your shop, you think cool, that will add a bit to my business and I won't have to worry about it, then actually the sisters products build up and start taking around 20-40% of the overall takings, then you think i want to introduce other brands and keep it seperate from your sister, (your sister now thinks WHAT!!!), she takes the huff, you take the huff and ckuck her out of the shop. You don't speak for 10 years, and laugh about it but at the time you won't feel like that then miss out on 10 years with your sister.

This is a little simplified and extreme but it does happen, other things which will happen, staff get the till mixed up, and your say £50 down in products, who are you going to blame, are you going to have your own staff, pay rent etc etc.

 

[TTOPIAH]

I had a similar set up (though i sold computer games and my friend sold records) but we had no problems. We halved all the bills on rent and bills but treated everything completely seperate as though it were two shops that shared one entrance. No tax problems and we were both seperate businesses. We did not have any staff though but as long as they are okay with the set up and you are not forcing extra work on them with no warning I think you should be okay.

 

[mooncreature]

I had a similar set up (though i sold computer games and my friend sold records) but we had no problems. We halved all the bills on rent and bills but treated everything completely seperate as though it were two shops that shared one entrance. No tax problems and we were both seperate businesses. We did not have any staff though but as long as they are okay with the set up and you are not forcing extra work on them with no warning I think you should be okay.

So you operated as two sole traders each with your own books on the same premises?

 

[TotallySport]

So you operated as two sole traders each with your own books on the same premises?

Unless your going to pay your percentage of the bills and pay for your percentage of the staff (i take it your not going to sit there and only sell your products), then I don't think you can take the above information as the same situation as yours, you would be better ringing the HMRC and after asking for written confirmation, or ask her or your accountant.

 

[mooncreature]

Totally I appreciate your concerns but most of what you've posted is quite irrelevant because you're making a lot of assumptions that just don't apply to our situation.

My question really is more about the tax and legal implications of operating two separate business entities on the same premises.

 

[TotallySport]

I am making assumptions, but unless you put the assumptions right no one is going to be able to answer your questions, tax isn't as simple as black and white which is why I said don't take the other persons situation as the same as your own, if it isn't but his answer suits what you wanted to hear, and even if it is you shouldn't take the word of someone on the forum for matters on Tax.

If you want proper information ring the HMRC or speak to an accountant.

 

[CSBob]

Not a qualified opinion, but quite a while back I spent several years running a sole trader business from the back room of our local video rentals store (well, it was cheap and I was past the clutter-my-bedroom stage!), without a peep from either my accountant or the taxman. We had separate business telephones registered to the same address. I bunged the video guy fourty quid cash a week and put it through my books as rent - whether he did or not, I was too polite to ask (and besides, it was none of my business).

He eventually wanted to sell up (Blockbuster had come to town...) so I bought him out, cut down on all the old videos still on the shelves (that dreadfully tacky soft porn had to go, for a start!) and used all the freed space to install arcade machines. These were provided by a local supplier and once a week we simply split everything that came out of the machines, 50/50.

At some point during this stage an enterprising local lad, who was into all the very early game consoles (commodore, etc), asked if I could spare some shelf space to rent out his massive collection of game cassettes. Blockbuster was biting worse than ever so I agreed, and again, we split the proceeds. Shortly after I began stocking the actual consoles and this proved to be a nice little earner.

There are two morals to this tale -

- On at least three occasions over several years I was a willing party in a mutually-beneficial, shared-premises deal, with never a legal problem.

- Blockbuster eventually won, but it was one hell of a fight!

 

[TTOPIAH]

So you operated as two sole traders each with your own books on the same premises?

Yes we contacted HMRC and it was okay. We each put half the rent and bills on our taxes (no bungs by either of us) and mentioned we were sharing the premises and that the totals on our taxes were half of what it would be if only one of us had the premises and no problems arised.
However we agreed to always pay half the costs each even if one of us had a terrible or brilliant year, but your situation does not seem as 50/50 as ours, you'll have to come to your own arrangement.
We never shared tills or took each others money, it was COMPLETELY seperate.
But like you said its a different situation, but we had no tax problems if thats all your interested in.

 

[Scalloway]

To keep it as a separate business I would recommend having a signed and dated written agreement. You would need to keep records of goods supplied to your sister and tie this up to sales income and stock in the salon. Rather than your sister puting it through her till I would recommend a separate cash box with a note book to record sales.

 

[arcon5]

I suppose it would work in a similar way to say costa coffee house renting space in a bookshop. Except where they are sub-leasing space, you are paying rent for space and staffing services.

I do remember reading somwhere that a person can run two businesses turning over for example 50k each and neither would have to be VAT registered - this was based is very strict assumptions about each. They are not selling complimentary products and they operate COMPLETELY different. They couldn't benefit or trade between them both as to benefit from economies of scale in any way or form. Seems a little volatile mind.

This was a long time ago I read this so can't remember where - but the point is you should most definitely have an agreement in place and be paying a fee (even if its very small) so its strictly a business arrangement and the tax man can't come at her saying she is trying to evade in any way or form.

 

[Scalloway]

I do remember reading somwhere that a person can run two businesses turning over for example 50k each and neither would have to be VAT registered - this was based is very strict assumptions about each.

The main point there is that they are separate limited companies! Once an individual sole trader is VAT registered VAT applies to every business they run as a sole trader.

 

[mooncreature]

I am making assumptions, but unless you put the assumptions right no one is going to be able to answer your questions, tax isn't as simple as black and white which is why I said don't take the other persons situation as the same as your own, if it isn't but his answer suits what you wanted to hear, and even if it is you shouldn't take the word of someone on the forum for matters on Tax.

If you want proper information ring the HMRC or speak to an accountant.

Yeah I know but it's always nice to ask around in case anyone has been through a similar situation and has helpful advice to offer.

The assumptions I was referring to were in the craziness you posted in post #7.

 

[TotallySport]

Yeah I know but it's always nice to ask around in case anyone has been through a similar situation and has helpful advice to offer.

The assumptions I was referring to were in the craziness you posted in post #7.

lol, no assumptions there (the story is about you owning the salon not your sister), just a short story to try and explain possible problems, but if your looking at things through rose tinted glass, I will say no more.

Good Luck

 

[mooncreature]

lol, no assumptions there (the story is about you owning the salon not your sister), just a short story to try and explain possible problems, but if your looking at things through rose tinted glass, I will say no more.

Good Luck

It was entirely assumptions and silly conjecture. I'm actually quite a pragmatic person thank you and I'm most definitely not looking at anything through rose tinted glasses. I have already discussed everything with my sister and she really is just eager to help me make some money while I'm studying.

I find it really sad that you don't seem to be able to believe that such a genuinely good natured person can exist. There is such a thing as having too negative an outlook, you know

Anyhow, enough with the derailing of the thread. It's getting daft. Thanks everyone else for the contributions - got some helpful leads

 

[mooncreature]

Also Scalloway: loving the "Big Keith" from The Office avatar xD

 

[Bri]

I see a problem in the taking of the cash rather than the operating and legal side.

I suspect your sister takes card & cash in the salon, how do you plan to apportion takings if client says after hair do I'll have a bar of soap and pay by card.Not all people carry cash around these days,and a percentage of that transaction goes to the merchant bank.

So business speaking by the time you work out the commission structure based around the stocking and selling of the soaps when do you think you'll be in profit because thats a hell of a lot of bars of soap to sell. In my rough estimation if you sold something everyday for a year less stock costs and commission/charges you may have enough to buy a new A4 notepad for your studies.

Its a lovely idea and thought through, but not thought through enough.It may be an idea for your sister as a bolt on earner for her business, a bit of upselling.

 

[TotallySport]

Hey, I don't care what you do it doesn't bother me, but if you read the forum it is full of people setting up business with their best friends and/or family and things not going exactly as planned for many reasons. Not a negative view, just a view. You maybe one of the few that doesn't have a problem and as such I wish you well.

I would have to assume your good natured people and you have told me off for assuming. and poop happens even to good natured people, I was just suggesting you get everything written down and formalised, for both parties but if you don't want to. I won't stop you.

As i have said before good luck

 

[mooncreature]

So business speaking by the time you work out the commission structure based around the stocking and selling of the soaps when do you think you'll be in profit because thats a hell of a lot of bars of soap to sell. In my rough estimation if you sold something everyday for a year less stock costs and commission/charges you may have enough to buy a new A4 notepad for your studies.

Where'd you get your figures from?! :|

 

[Bri]

Where'd you get your figures from?! :|

Simple business assumptions based on me being clean by washing using soapy products which me & my OH buy from supermarket/ Avon. Not rocket science really.

Something just struck me that you would turn over more if you had a two pronged attack, have a spot in your sisters and take the rest to car boot sales/ craft fairs, now that would provide you with pin money whilst studying.

Whatever happened to paper rounds and Saturday jobs.

 

[GGGSurrey]

After 30 odd years in business I’m naturally cautious and aware of what can go wrong but the negative responses above seem out of place.

Financial Risk – it’s much better to take a small space from someone who has it rather than committing to renting somewhere with a notice period etc. This is what you’re doing, well done.

Relationships with others – yes business relationships do fail but there are many thousands of successful business partnerships between brothers, sisters, parents etc. If you get on with your sister and are both level headed, then there’s every chance it will work. Of course, the negative scenarios outlined by other posters could happen but you’ll know already if it’s likely. The relatively low risk proposal that you are making seems less likely to be a problem.

Regarding the tax and VAT situation, there are definitely ways that you can organise yourselves so as to not cause VAT problems but do take advice first. You don’t want HMRC linking you together later. Perhaps your sister’s accountant could advise you both on how to keep separate – it’s in both your interests.

Profits on soap – I’ve no idea on that but you’re starting small so you’ll find out if it will work.

Good luck

 

[Doodle-Noodle]

We had similar issues before opening our art and craft shop in 2008. Our shop is kind of in two parts - one where we buy in and sell art and craft materials on which we charge/pay VAT (we are VAT registered), the other part of our shop sells handcrafted goods made by local artists. They rent a shelf from us for a monthly fee from which to sell their goods and we charge 10% commission on any sales they make: their goods never belong to us, they belong only to the artist until they are sold. We obviously wanted to avoid having to apply VAT on their goods if possible and it was a bit of a minefield trying to get clarification on the legalities, however after fairly lengthy correspondence with HMRC we have it in writing that we do not need to apply VAT to our artists' goods as we act only as their agents. We have a contract in place with all our artists, setting out that their goods are always theirs until sold, and our customers are all aware that they are byng direct from the artists when they buy from our shop.
We do of course pay VAT on the rental we receive from them and also on the commission we take from sales of their goods, but not on the sales value of their goods.
We only have one till, so all our sales (our artists' goods and our shop goods) are rung up through that, but each seller has their own ID number which is keyed in so that we can accurately identify exactly what has sold and who the products old belong to (either the shop, or the artist).
However, all sales, whether our products or our artists' products, all count when declaring turnover, so you might find that causes difficulties if your soap sales might be enough to push your sister's turnover up to the VAT threshold.
n short, the tax mn has things pretty well sewn up so tread carefully!

 

[GGGSurrey]

However, all sales, whether our products or our artists' products, all count when declaring turnover, so you might find that causes difficulties if your soap sales might be enough to push your sister's turnover up to the VAT threshold.

I can't find anything that backs up the idea that it does count as turnover. I know it doesn't matter to you as you are VAT registered but I think the comment in the thread at http://www.ukbusinessforums.co.uk/forums/showthread.php?t=115458 :

For VAT purposes, your turnover would be the value of teh goods if you are selling them as principal but if you are selling as agent, your turnover would normally be the commission.

is correct.

In the case of the original poster, it's even simpler. The proposal is for 2 businesses selling different stuff, run by different people but in the same building.

Although an accountant's advice should be taken, I can't see it being difficult to ensure that the sister's turnover is unaffected by her sister selling stuff in her shop.

 

[silvermusic]

Seems to me this is getting over-thought and complicated. Why do you need to be there to sell them? Wouldn't supplying them to her on a sales or return basis at a wholesale price be a lot easier and would the sales from these products really make the difference between being under the VAT threshold? Maybe do it this way and see how well they sell before going into it in a bigger way.