VAT Artificial separation

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Pickle Lillie
Pickle Lillie Registered Posts: 3 New contributor 🐸
in General accounting discussion
A husband and wife have been trading in partnership with two businesses for several years now. Business one is over the VAT registration threshold and business two is not. Both businesses have been accounting for VAT from the start.

One business operates from premises owned in joint names with a mortgage in joint names. Business two operates from alternative premises with a lease again in joint names.

We are now at the point where business one is run 100% by the husband and business two is run 100% by the wife. No business link of any type between the businesses and both trading in completely different sectors.

To stay competitive parties now want stop charging VAT on business two, similar businesses in the area in this sector are not VAT registered.

If the parties broke up the partnership and became sole traders would the fact that they are both involved with the freehold and leasehold and legally unable to separate that fact be sufficient an economic reason to stop them from, in effect de registering business two?

If it is and they go ahead and do so could I be in a situation of having to report re MLR, could I tell them if I do or do I have to keep quiet of the fact?

Comments invited

Thank you

Comments

  • deanshepherd
    deanshepherd Registered Posts: 1,809 Beyond epic contributor 🧙‍♂️
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    What are the two businesses?

    If they are unrelated then I see no problem in making one a sole-tradership and de-registering for VAT.
  • Pickle Lillie
    Pickle Lillie Registered Posts: 3 New contributor 🐸
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    deanshepherd wrote: »
    What are the two businesses?

    If they are unrelated then I see no problem in making one a sole-tradership and de-registering for VAT.

    One is a shop and the other a small guest house.

    But the partners are connected financially through the mortgage, the deeds to the freehold and the lease. Does this not matter with VAT then?

    Should I/could I get a definative answer from the VAT man?
  • deanshepherd
    deanshepherd Registered Posts: 1,809 Beyond epic contributor 🧙‍♂️
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    Put all the facts in writing to the VAT man if you want a ruling.

    Personally, I would not be concerned. You could even use an LTD for one of the businesses and there would be no issue at all.
  • groundy
    groundy Registered Posts: 495 Dedicated contributor 🦉
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    This would be much simpler if business two was too incorporate as mention by Dean. However, I would recommend approaching a VAT specialist. We use one in the North West who has been known to us for years. He always emails a reply within 24 hours and then bills us his time which we pass on to our clients.
  • Pickle Lillie
    Pickle Lillie Registered Posts: 3 New contributor 🐸
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    Thank you both for your replies. My gut feeling is that this will not be allowed since there are legal connections not easily broken i.e. the bank will not take the wife off the mortgage.

    Unfortunately they were already set up like this when they came to me, I would have suggested incorporating one or both of the business's before business two started had I had the oportunity to.

    groundy could you please PM me the details of who you use as a rough hourly cost.

    Thank you

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