Basic Vat question

zephyr

Hi

I am having a blank moment.

I have a vat registered 2 person partnership, if they set up another business (similar trade), I know they will have to register the business for VAT (although below the threshold), however if they set up with a third person, who is not registered, will they still have to register?

My instinct says that it will not make a difference, the only way would be to form a ltd company

Your thoughts would be appreciated.

groundy

Even if they form a Limited company it doesnt mean they wont have to register. If it is a similar trade run from the same premises with the same equipment, same phone number, one till etc etc. Then all you are doing is seperating to avoid VAT. I wouldnt say this is a simple VAT question as such and would advise seeking professional advice.

We use a local VAT expert who charges us anything from £30 to £50 for straight forward advice over the phone. Before calling him we advise clients of the cost, which we pass on to them presuming they are happy.

peaman

Had a quick look on HMRC website and saw this...

Joint ventures and VAT

If you and another person intend to work together on a business or project as a joint venture, HM Revenue & Customs (HMRC) may consider this as a partnership. This would be a new and separate person for VAT registration purposes. The joint venture may have to register for VAT if its turnover is above the relevant threshold.

Not helpful is it! It doesn't mention artifical separation.

It seems to depend on whether a new partner would deem the business to be a separate entity.

I would call HMRC VAT helpline first, they are sometimes helpful but they are always free.

groundy

Peaman

If they are trading from same premises with same contact details then it would be an artificial seperation and not a seperate entity.

peaman

groundy, yes I know the artificial separation rules.

Of course, we don't know anything about the business, do they even have business premises?

The point is that the new partner adds a new dynamic to the business, which changes it. If we knew all the details of the business we may be able to determine sufficient differences that distinguish it from the original business.

I know a client (VAT registered) that was a sole trader and set up a partnership (similar trade) with another person (not VAT registered) and they were told by HMRC that they didn't need to register for VAT as the partnership was a separate entity for VAT.

I also know of several businesses which have been blatantly artificially separating their businesses to avoid VAT for years, including the accountancy practice I work at. The practice recently had a VAT inspection as well, but HMRC didn't seem to notice or care.

It doesn't hurt to ask HMRC does it?