[VAT] is this disaggregation?

[Karimbo]

Hello

I started off with an event equipment rental business which was b2b, I just voluntarily registered for VAT because I was supplying businesses and everything was prices +VAT, I had to buy a lot of capital assets so it made sense to voluntarily register.

That business was slaughtered during covid, so I pivoted to ecommerce (retail), to save money on accounting software, company registration, accountancy costs, and other costs of operating a new ltd. I just decided to run the retail business on the exisitng ltd co I had.

After crunching the numbers, I can see ecommerce has very slim margins, I can save a lot of money buy not collecting VAT on sales. I'm alrady on flat rate scheme at 7.5% but there's a chunk of VAT I can avoid paying.

If I move the retail ecommerce company to it's own ltd co, and not be vat registered would that now be considered disaggregation. It's an entirely different business model, different customer base, different customer channels. There is absolutely no shared costs or resources between these businesses what so ever.

Additionally.. I have seen another opportunity for ecomerce retail. different sector, different market. If I create a different ltd co for each retail business, would that be considered disagrregation.

E.g. currently have a watch strap retail store. Another passion of mine is coffee, I have spotted a gap for products to help home brewing coffee, if I set that store up as it's own entity would that be considered disagreegation. Say watch strap is doing 60K in sales, and home brewing coffee business would be doing 60K in sales as well. Both in their own ltd co neither are VAT registered?

 

[GLAbusiness]

There is absolutely no shared costs or resources between these businesses what so ever.

Just a thought, but are you sure about this. Does each business have its own premises, phone lines. web sites. email hosting, accountancy software, accountant contracts, office space, no use of home as office, payroll contracts etc. etc.

 

[Karimbo]

Just a thought, but are you sure about this. Does each business have its own premises, phone lines. web sites. email hosting, accountancy software, accountant contracts, office space, no use of home as office, payroll contracts etc. etc.

Good point

Premises: no, home based, with self storage contracts which can be for each individual business.

Phone lines: voip and can be separated

Website, email hosting, bank account, accountancy software, accountants, payroll: 100% seperate.

They are completely different set of customers, I wouldn't even benefit from using the watch strap newsletter list of subscribers to promote the coffee gear site.

I understand disaggregation concerns if I had different type of watch produxts, nylon straps, leather straps, spring bars, watch batteries that would all be one business. Trying to separate these into different businesses would be disaggregation for sure.

 

[lesvatadvice]

Since the two businesses are quite distinct, in terms of products and customer bases, it need not be artificial to separate them.
You should weigh up the costs of each option; a non-registered watch strap business still suffers irrecoverable VAT on its purchases; and coffee beans are zero-rated.
If it were my business, I would use a single limited company, with separate cost centres. I would thus avoid any risk of an HMRC 'disaggregation' challenge. Further, I would then not have to face the later cost of having to register another business for VAT when its turnover grew to £85k.

 

[lesvatadvice]

One comment on disaggregation - the chances of being 'caught' by HMRC are not usually high. But the potential cost in additional VAT and professional fees, etc will be substantial.