Tax treatment of 2 businesses as sole trader

[Jon12345]

I have been running a business as a sole trader for quite some time now. This business is VAT registered.

Recently, I started another venture unrelated to my existing business. It is still as a sole trader, not a Ltd company.

So this raises a couple of question.

1. Since this is a new additional business, is it automatically VAT registered because my other business is? Or is it treated as a separate entity and so not VAT registered?

2. Do I create 2 self employed tax forms to submit, or amalgamate all the income and expenditure into one tax form? I am asking because since I am a sole trader, I am the one entity, unlike a couple of different Ltd companies.

Thanks.

 

[MyAccountantOnline]

I have been running a business as a sole trader for quite some time now. This business is VAT registered.

Recently, I started another venture unrelated to my existing business. It is still as a sole trader, not a Ltd company.

So this raises a couple of question.

1. Since this is a new additional business, is it automatically VAT registered because my other business is? Or is it treated as a separate entity and so not VAT registered?

2. Do I create 2 self employed tax forms to submit, or amalgamate all the income and expenditure into one tax form? I am asking because since I am a sole trader, I am the one entity, unlike a couple of different Ltd companies.

Thanks.

To answer your questions -

1. As a sole trader you are VAT registered so your VAT registration includes all of your business activities.

2. You will need 2 supplementary pages, one for each business - have a read here

 

[HFE Signs]

You could form a LTD company for one and keep the other as a sole trader, that way you could have vat on one and not the other if that's what you're looking to achieve.

 

[lesvatadvice]

You could form a LTD company for one and keep the other as a sole trader, that way you could have vat on one and not the other if that's what you're looking to achieve.

If you are the person controlling the two businesses, I would not recommend this course of action. HMRC have powers to aggregate the turnover of both businesses.

 

[HFE Signs]

If you are the person controlling the two businesses, I would not recommend this course of action. HMRC have powers to aggregate the turnover of both businesses.

If this businesses are totally different then its perfectly legitimate, if its clearly to avoid vat then yes, I agree with you.

 

[Paul Kelly ICHYB]

As mentioned, you are the business, so you are VAT registered, regardless of how many different entities you trade under.

You probably need to set a company (or two) up and trade through them, but, as mentioned, if they are even close in what they do, you could fall foul of splitting to avoid registration.

 

[lesvatadvice]

If this businesses are totally different then its perfectly legitimate, if its clearly to avoid vat then yes, I agree with you.

The fact that the businesses are different will not assist. HMRC powers depend on the identity of the controlling person or persons. One person essentially in charge of multiple wholly-owned companies, may find that HMRC treat that as a single business for VAT purposes.

 

[Paul Kelly ICHYB]

One person essentially in charge of multiple wholly-owned companies, may find that HMRC treat that as a single business for VAT purposes.

Wow - I would expect a lot of people may have issues if this is the case!

 

[lesvatadvice]

Wow - I would expect a lot of people may have issues if this is the case!

Agreed.
My approach tends to be low-risk I would not advise a client to follow a course of action which leaves him vulnerable to HMRC action, substantial assessment, plus additional admin costs.
If the client wishes to take the risk, that's his decision.

 

[HFE Signs]

The fact that the businesses are different will not assist. HMRC powers depend on the identity of the controlling person or persons. One person essentially in charge of multiple wholly-owned companies, may find that HMRC treat that as a single business for VAT purposes.

It's perfectly ok to be a director of a company and have a sole trader company that is totally different. Just because the Ltd company pays vat does not mean the sole trader would have to. They are completely different and separate businesses and are treated as totally separate accounts. Multiple sole traders, yes you are right but not the case with one being a Ltd and the other being a sole trader with dissimilar trading activity.

 

[lesvatadvice]

... which is precisely why you should seek good professional advice at an early stage.
HFE and I take a different view of a fine point.

 

[japancool]

The fact that the businesses are different will not assist. HMRC powers depend on the identity of the controlling person or persons. One person essentially in charge of multiple wholly-owned companies, may find that HMRC treat that as a single business for VAT purposes.

I assume HMRC wouldn't have an issue if both businesses were separately VAT registered?

 

[lesvatadvice]

I assume HMRC wouldn't have an issue if both businesses were separately VAT registered?

Unlikely, as there would be no loss of VAT. The main reason for 'aggregation' of two or more businesses is that there is a loss of VAT.

 

[DontAsk]

Worth noting that HMRC do not need to prove intent to reduce VAT, all they need is to show is actual loss of VAT.