self employed with 2 businesses

System
System Posts: 100,537 🤖 Admin 🤖
edited June 9 in General accounting discussion
Just wondered if anyone could help.

my client has a driving school(not at vat threshold) and also a training school for HGV(will be at vat threshold). He runs both companies seperately but is registered as self employed at the moment. So if he goes vat registered he has to charge on both companies not just the HGV training.

Would you think it would be better if he went limited on the training school and vat registered but kept the driving school as a sole trader and not vat registered?!

Any help on this would be appreciated.

Comments

  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:self employed with 2 businesses

    its the legal side i want to find out about, as it is basically avoiding charging VAT on the driving school side.

    would really appreciate some help on this.
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:self employed with 2 businesses

    It's the 'person' who's vatable, not each business that they're part of, so unfortunatly your client can't get out of registering by going limited on the driving school. It's explained in 6.1.4 of the vat guide which can be found here:

    http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_ShowContent&id=HMCE_CL_001596&propertyType=document

    not what you wanted to hear i know!
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:self employed with 2 businesses

    thanks jodie for replying.

    i have tried to find out if he could pass one business onto his partner to run seperately(with her going self employed then) and if it is feasible for him to run the other business with VAT etc without it affecting the other one!! But I just cant seem to get an answer anywhere!

    Just wondered if you knew if this was feasible or not?


  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:self employed with 2 businesses

    It possibly is feasible, but I'd be very cautious about doing that - I know it's not the same thing, but with the 'Arctic Systems' case as well publicised as it is I think we all need to be very careful to tax individuals on THEIR earnings, not their partners. Maybe I'm being over-cautious here, but unless the wife/girlfried/boyfriend was actually running the business I wouldn't do it.

    I can understand your frustration though - I've got a client who runs a garage (which is vat registered) but he also does a few shifts a week as a taxi driver & his previous accountant hadn't told him to include his taxi earnings on his vat returns! to make the situation worse he's not kept any petrol receipts so now has to pay over VAT on his entire taxi turnover for 8 months! not a happy bunny.
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:self employed with 2 businesses

    Thanks jodie for the advice. She is actually working in the business already but not earning yet as there is not enough profit! maybe I need to pass this onto an accountant as I dont want to give the wrong advice! trouble is, its one of my first clients and just my luck to get a tricky situation to deal with!

    Thanks for you help anyway.
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:self employed with 2 businesses

    Jodie you have just given me heart failure thinking that I had given duff advice to a client recently - so much so that I have just spoken to HMRC, as I had a slightly similar situation.

    It is the legal entity that is registered - ie sole trader, partnership etc. My client has his own sole trader business which is not VAT registered and has set up a completely different business as a partnership which is VAT registered. C&E have confirmed to me that the first (sole trader) business does NOT have to be VAT registered as they are separate legal entities.

    In Ed's case though, if it were a husband and wife partnership it could be construed as avoidance, but might we worth a call to check it out.

    If you do get the right answer, cover your backside and get the person's name and a call reference - I remembered at the very last minute and just need to keep it safe now!

    Sorry to have muddied the waters again, but this is direct from the horse's mouth.

    Claudia
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:self employed with 2 businesses

    I have to say I have been following this thread with dread, as we have the same situation, a company that is VAT registered and a sole trader that isn't. I have been worried that we had made a mistake but my information was the same as Claudia's.

    Annette
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:self employed with 2 businesses

    Thanks Annette - your advice is always spot on - so I am pleased you agree with me!! Having been reading this I could feel a major PI claim on its way!!!

    Claudia - who will sleep easy in her bed tonight :D
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:self employed with 2 businesses

    sorry, didn't mean to scare you! But presumably your situation is different as there's a partnership involved. Am I right in saying that by one person creating a Ltd Company and controlling it that if the company became VAT reg, anything that the person did as a sole trader would also need to be VAT assessed?
    That's the way I thought it was, I'm really sorry if that's not right.
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:self employed with 2 businesses

    Thanks claudia for the info. Will call tomorrow, but surely if his girlfriend is involved already with the business and 'takes it on' as sole trader, then they both become separate entities?!

    I wondered why I had no replies earlier in thread, pressumably because no one is really sure as this seems to be "murky territory"! I will let you know what answer I get eventually!

    Thanks to all
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:self employed with 2 businesses

    Hi Guys,

    Just thought I'd but in!!

    I have just read the various posts and agree that legal entities are those that are VAT registered NOT individuals. For example, Mr A could set up company B Limited and company C (sole trade). B Ltd could be VAT registered in its own right but C not as it is below the threshold. If company B were to include all company C transactions in its VAT return then this would completely distort the returns and contradict VAT legislation. As company C (sole trader) is not VAT registered if all its transactions were to be included in Company B VAT return then effectively VAT is being paid and re-claimed in contravention of the legislation. Not only that surely the control accounts would never agree.

    I think the confusion here relates to taxation and not VAT. The Arctic systems case relates to two (married) individuals and the fact that dividends voted to the lower-earning spouse should be taxed at the same rate as the main taxpayer due to his renunciation of remuneration. It must be noted that "Control" for taxation purposes (associated companies [though in the above thread there does not appear to be any associated companies]) is not the same for VAT purposes.

    For Jodie R' client, I would re-visit the files and double check his situation as he could be paying more VAT than is needed.

    Kind regards
    Steve

  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:self employed with 2 businesses

    Well i do appologise for getting it so wrong. :oops:
    I've gone back to my ATT notes and will write it out here to hopefully help clear things up:

    'It is important to note that it is the 'person' who is required to register and not the business or businesses which he might carry on. Thus a lawyer who practises as a sole trader in london and runs a farm in Fife will be allocated one registration number to cover both businesses and will have to account for VAT of both on one return.

    Where, however, there are seperate distinct legal persons, seperate registrations will be allowed. For example, John, trading as a sole trader, is a person seperate from John, Ltd of which he is a director and majority shareholder, or John and Co in which he is a partner with Steven.

    However, one avoidence scheme arising from this rule (known as 'disaggregation') has been closed. It involved a business being broken down into several small entities, each of which had taxable supplies below the limit for compulsory registration. The commissioners may make a direction under which the persons involved in carrying on a business in this manner will be treated as a single taxable person carrying on a single business.'

    That's taken from Para 2(1) Sch 1 VATA 1994.

    So appologies to everyone for the worry I caused there, and as far as the arctic systems comment goes, I know that it's not directly linked at all, but I think still think that it highlights that the revenue could take a hard line where income earned is not being taxed on the right person (whether that be dividends, salaries, income tax or VAT).


    jodie
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:self employed with 2 businesses

    Jodie has got a point here in connection with the Arctic Systems case. Certainly in view of the fact that Inland Revenue & Customs are now both combined.

    The Revenue are seeking to close as many loopholes as possible (certainly insofar as Limited Companies are concerned). A couple of year's ago all sole traders/partnerships were incorporating because of the tax advantages Limited Company status brings. However, the Chancellor has introduced various means of eliminating some of these advantages. Notably, the Non-Corporate Distributions (which is in the process of being abolished) but no doubt there will be some other form of "additional" tax introduced. We shall see.

    Kind regards
    Steve
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:self employed with 2 businesses

    What I have always been amazed about re Ltd Co's is that Gordon and HMRC have not thought about the minimum wage which would be a lot more than the £5K that directors are currently paying themselves. Think of all that extra PAYE and particularly ers NI that would generate :lol: If that did happen I think most companies would unincorporate and go back to being sole traders again as there would be tax disadvantages to being ltd.

    Claudia
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:self employed with 2 businesses/Update!

    just to say, I called AAT business helpline. They advised me that if the two businesses were run seperatly and there was no connection ie. stings being pulled from one side etc., then they would be considered two seperate entities.

    However, after all that...my client has decided to not become vat registered yet!!

    Oh well, i consider it a learning process!!! :D
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:self employed with 2 businesses

    I know this thread has been really well covered, but I have to say that I think the AAT business comment is a bit loose. Claudia's remark about Legal Entity gives the clearest guidelines. A sole trader (proprietor) is a single legal entity no matter how many businesses he has. A Ltd company or LLP is a single separate legal entity even if the director has other sole trader, partnership or directorship roles. A "business" could be any one of these.
    The AAT example clearly has a loophole - the connection between two businesses in many of the exmaples above is that they are run by the same proprietor.
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:self employed with 2 businesses

    Hiya,
    I've just read this with interest as I had a similar question yesterday. I phoned HMRC who told me that as long as the 2 companies (one Sole Trader & the other a Partnership) are completely separate (separate accounts and banking) with no inter-company trading, then they should be treated as 2 separate entities for VAT. Therefore this client has a sole trader business registered for VAT & a prtnership not registered. I must admit to having read the VAT publication mentioned earlier and the information looks to be conflicting. I think their booklet is unclear.

    Gill

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