VAT advice please

Discussion in 'Accounts & Finance' started by PrettyThings, Aug 12, 2019.

  1. PrettyThings

    PrettyThings UKBF Contributor Free Member

    34 2
    Hi
    I have two tanning & beauty salons; they are separate Ltd companies. One is VAT registered. A few months ago I tried a new sideline in one salon (selling clothes) which is working well. At the moment all the sales go through the salon where they're sold (which is VAT registered). I'd like to expand the sideline and start selling clothes in both salons and also maybe online. Can I 'split' the clothing from the tanning & beauty business and start a new, separate company? I know there are rules about it and was advised I wouldn't have been allowed to split the tanning and beauty, but this seems different enough to do so? The new company would then pay a small rental to be in the salon. I don't envisage the clothing sales to ever hit the VAT threshold. The salon which is VAT registered would still remain over the threshold without the clothes sales.

    Many thanks
    H
     
    Posted: Aug 12, 2019 By: PrettyThings Member since: Jul 13, 2014
    #1
  2. Adam93

    Adam93 UKBF Regular Free Member

    261 48
    HMRC will have a very strong argument that the disaggregation will apply due to the fact they will be operating from the same premises.

    You run two salons through spectate limited companies, one being VAT registered and one not? VAT disaggregation probably already applies to be honest.
     
    Posted: Aug 12, 2019 By: Adam93 Member since: Jan 18, 2018
    #2
  3. Mr D

    Mr D UKBF Legend Free Member

    15,606 1,719
    Yes you can split the clothing side and have it as a separate company. As Adam says however HMRC may look at all 3 businesses as linked for VAT purposes.
    And not doing so as an attempt to avoid VAT collection.

    Better get some professional advice.
     
    Posted: Aug 12, 2019 By: Mr D Member since: Feb 12, 2017
    #3
  4. MyAccountantOnline

    MyAccountantOnline UKBF Legend Full Member

    12,700 2,354
    I agree with Adam93 I think HMRC would have a strong case to suggest it's artificial separation.
     
    Posted: Aug 12, 2019 By: MyAccountantOnline Member since: Sep 24, 2008
    #4
  5. PrettyThings

    PrettyThings UKBF Contributor Free Member

    34 2
    When I set up the second business (it's slightly different to the first), my accountant went through things and said it was fine but now I'm worried - and he's on holiday for a week!

    Obviously the clothes will have to stay within the current business from what you've said. But I am confused as I thought if your businesses were very different to each other they could be separate? I want a different name and logo for the clothes business. How different do they have to be? Thanks for your help.
     
    Posted: Aug 12, 2019 By: PrettyThings Member since: Jul 13, 2014
    #5
  6. MyAccountantOnline

    MyAccountantOnline UKBF Legend Full Member

    12,700 2,354
    Do bear in mind anyone posting a reply for you here is only giving an opinion based on very limited information.

    Your accountant knows you and your business, and is giving you proper specific professional advice and you should be able to rely upon that.

    If you are concerned ask him when he returns from holiday - get some written advice if he's not put the advice in writing previously. Specifically say you are concerned HMRC may see this as artificial separation.

    Its not a case of them being different - do a few Google searches on the topic, have a look at the HMRC guidance and some of the cases that have gone through the Courts regarding this.
     
    Posted: Aug 12, 2019 By: MyAccountantOnline Member since: Sep 24, 2008
    #6
  7. AllUpHere

    AllUpHere UKBF Ace Free Member

    2,999 1,068
    Did you set up more than one limited company to avoid having to charge VAT at one of the salons?
     
    Posted: Aug 12, 2019 By: AllUpHere Member since: Jun 30, 2014
    #7
  8. PrettyThings

    PrettyThings UKBF Contributor Free Member

    34 2
    No, one company was already VAT registered. When I set up the second, I wanted it separate so I have two set of clients (they can't share their minutes between the salons for example) and it offers some different services so I thought it would be clearer to be separate. As the turnover is a lot lower and there were high set up costs I would probably have been better of under one company and claimed the VAT.
     
    Posted: Aug 12, 2019 By: PrettyThings Member since: Jul 13, 2014
    #8
  9. spidersong

    spidersong UKBF Newcomer Free Member

    226 100
    Having a proper business reason for having two different legal entities is one of the tests for disaggregation, as AllUpHere implies; HMRC look at these cases and one of the main tests they need to prove to 'join businesses together' is that businesses have been split just to avoid VAT.

    It's often quite reasonable to isolate new (riskier) ventures from existing businesses, and so long as they're kept separate; separate employees, separate accounts, separate suppliers (or at least supplier accounts), separate premises, different customers etc. etc. then you should be reasonably safe from HMRC looking to aggregate the businesses, so I wouldn't be too concerned that your accountant has taken the view that you could keep them separate. As Nicola says he'll know your setup better than anyone on here.

    What HMRC look at is the independence of the businesses, which is where the clothing one might have issues; could it exist if you weren't giving it space in the salon, does it have customers outside the salon, does it have its own staff. Basically if it's in the same building, serving the same customers, with the same people taking the money then HMRC aren't going to look at it and say 'oh that's clearly a separate business able to exist independently of any other business'.

    It's not impossible for it to split off, but if it commenced as part of another business then it's harder to convince HMRC that splitting it off on its own is anything other than splitting one existing taxable business to make two non-taxable businesses, or one taxable one not.
     
    Posted: Aug 13, 2019 By: spidersong Member since: Aug 20, 2008
    #9
  10. PrettyThings

    PrettyThings UKBF Contributor Free Member

    34 2

    Thank you for your reply. We do have everything separate with the two salons, even when customers want to use both salons they have to register at the second salon and are entitled to the introductory offer at each salon. There are a couple of other suggestions which I'll also implement and I'm definitely going to keep the clothing within the first salon to avoid any issues! Thank you all again.
     
    Posted: Aug 13, 2019 By: PrettyThings Member since: Jul 13, 2014
    #10