Separating business for VAT

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Separating business for VAT

Postby Ed209 » Wed Aug 22, 2018 8:26 pm

My wife and I run a framing and gallery shop I do the framing at home simply because there is not enough room in the shop. I man the shop two mornings a week as my wife works them two days as a practice nurse. The shop takes the framing orders and we sell art and crafts on a commission basis We are getting concerns about our turnover as to not start creeping up in VAT territory in the future so just wondering about splitting the business in to separate entities Framing & Gallery one managed by me and the other my wife but still operating both from the same shop


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Re: Separating business for VAT

Postby kuduframes » Thu Aug 23, 2018 6:42 am

I'm sure there will be guidelines published by HMRC that will give you some ideas as to whether what you are trying to achieve can be done legally.
Do you use an accountant? if so then that is the obvious place to start asking about this, particularly as they will presumably be reasonably familiar with your business.
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Re: Separating business for VAT

Postby Steve N » Thu Aug 23, 2018 6:43 am

Great question to ask you accountant,
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Re: Separating business for VAT

Postby Not your average framer » Thu Aug 23, 2018 12:17 pm

I was told when I was looking at running two separate businesses from the same location that it would not be accepted unless the businesses had no connection and were separately owned. The tax authorities reserve the right to interpret whether these businesses are one business or two for the purposes of tax. Generally they are looking for actions which are intended to negate tax liabilities.
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Re: Separating business for VAT

Postby JFeig » Thu Aug 23, 2018 1:09 pm

This sounds like a single business entity to me from a tax authority basis (HMRC in your case). I think that they are just too close to a single market center. Many businesses already combine the two product lines into one business.
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Re: Separating business for VAT

Postby prospero » Thu Aug 23, 2018 4:04 pm

:D You might just have to bite the bullet. HMRC know all these crafty moves and generally stamp down firmly.

Remember though that if you do register you can retrospectively reclaim VAT on the stock and equipment you still hold
that you have bought for the business going back to the year dot. As long as you have the invoices. :lol:
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Re: Separating business for VAT

Postby Ed209 » Thu Aug 23, 2018 4:44 pm

Thank you I am not deliberately trying to deceive HMRC just wondered if I could separate the framing business from the gallery with me running and doing tax return on the framing and my wife running and doing tax return on gallery. I was a self employed gas engineer before framing and managed my tax affairs ok without a accountant but probably time to appoint one, I have wondered if there is benefit in going VAT registered, I do think they should raise the threshold it seems to stop a lot of small business expanding and you have the option of registering if you want to.

Read a interesting article last night about a husband & wife running a hairdressers out of the same premises, used the same supplier and bank account but the court ruled against HMRC and accepted they were two seperate business (will try and find link to article later and post if anyone interested in reading it)

Many thanks for replies Paul
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Re: Separating business for VAT

Postby prospero » Fri Aug 24, 2018 3:05 am

Best way is to ring your local tax office. I've always found them surprisingly helpful. :lol:

If you did manage to separate the businesses you would have to invoice your wife for any stuff she used that came from your business
and vice-versa. But if you each had a VAT registration that's no problem. :P
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Re: Separating business for VAT

Postby ChrisG » Fri Aug 24, 2018 8:20 am

I believe it comes down to customer base. If you have the same customers then it is one business if different customers then can be separate businesses. In the hairdressers case each partner probably had their own customers but just shared a premises.
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Re: Separating business for VAT

Postby misterdiy » Fri Aug 24, 2018 10:02 am

We started off from inception of business by registering for VAT. We built our equipment up - primarily from VAT registered people or businesses so managed to get 15% (now 20%) back on those purchases. As the business grew we bought more and expensive equipment and recovered all of the VAT. When we started we had rebates from HMRC for over a year, which was very useful.

My view is that VAT is nothing to be afraid of, makes your business more professional to suppliers and corporate customers ( who also can recover 20% of your charges) so I honestly don't think I was financially disadvantaged. The fly in the ointment now is that you have to use an HMRC approved account system (Sage/Quickbooks) to submit electronically. I did submit electronically but from an excel calculated spreadsheet, but I don't think that will now be acceptable.
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Re: Separating business for VAT

Postby simoonez » Fri Aug 24, 2018 8:20 pm

I posed this question to my accountant a while back. His answer was that, while we could, he doesn't recommend it simply down to it confusing matters. The invoices between the two companies, the two sets of accounts to be made up, the two different invoices that go out, two filing systems are all a massive ball ache. He said he's known people do it and it's never really worked.
We registered when we hit the threshold but I wish we had done it right at the start.
I say don't fear it, it's not really a problem.
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Re: Separating business for VAT

Postby poliopete » Fri Aug 24, 2018 10:58 pm

As misterdiy said "VAT is nothing to be afraid of" and I agree completely. We hit the VAT threshold many years ago and never looked back for all the reasons he gives. :D

Just think about the VAT paid on your latest underpinner :roll:

Peter.

BTW after rooting through I have found much more Birds eye Maple and it's very nice quality.

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Re: Separating business for VAT

Postby fusionframer » Sat Aug 25, 2018 9:47 am

I am VAT registered and was told by HMRC i was not able to separate my joinery and framing businesses. I have customers who use me for both.

I use Quickbooks and it has made both my accounts and VAT submissions easy and painless.

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Re: Separating business for VAT

Postby Ed209 » Sat Aug 25, 2018 10:55 pm

I have accepted that being VAT registered one day is not going to be a problem, Just trying to figure out how that would affect commission bits ie we sell something on commision for £30 and take 30% at the moment so we give the artist £21 and we make £9 how as an example would VAT affrect that over all ie do we need to add vat, just pay the vat on our fee etc.?
I know a accountant may be able to answer but I don't have one yet and my experiance in the past I was very dubious about the advise given by previous accountants I have had. Need to find one that is more than a bookkeeper apparently there a three levels of accountants.


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Re: Separating business for VAT

Postby ChrisG » Sun Aug 26, 2018 8:40 am

You can use the VAT Margin Scheme which allows you to just pay VAT on the profit you make on a non VATable purchase. So in your example you would pay VAT on your £9 commission ie £1.50, you do need to keep a record of non VAT purchases and when you sell said items, also you cannot give a VAT receipt for you sale. Probably best to look up Margin Scheme detail on HMRC website.

You need to find an accountant that deals exclusively with small companies and preferably retail.
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Re: Separating business for VAT

Postby prospero » Sun Aug 26, 2018 1:28 pm

I can enlighten you on the VAT on commission sales thing.....

You sell a painting for £100

You take your slice, say £40

You pay the artist (assuming they aren't VAT reg) the FULL £60 remaining.

VAT is due on your £40. So you end up with £32 and pay HMRC £8

I always itemise the workings out on the invoice and GET A RECEIPT for the 60 from the artist.

I've had extensive arguments in the past from dealings both sides of the fence - me selling and me having stuff sold
and in the end I thrashed the matter out with the VAT folks and got a letter in my files to confirm. :D

Life would be so much simpler if everybody in business had to be VAT reg. :clap:
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Re: Separating business for VAT

Postby JFeig » Sun Aug 26, 2018 1:55 pm

That is the way it is in the US. At least in States, counties and cities that collect sales and use taxes.
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Re: Separating business for VAT

Postby Ed209 » Sun Aug 26, 2018 2:31 pm

Ok thats interesting info and makes sense.
My next question then is how does commision sales contribute to your overall turnover pre vat registered ie is the turn over just our 30% or the whole amount we sold the item for?


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Re: Separating business for VAT

Postby prospero » Sun Aug 26, 2018 3:00 pm

The entire sale forms part of your turnover. The payment to the artist is deductible in terms of calculating your profit.
It's as if you had bought the item from the artist for the net price.

An accountant might look at it from a different angle, but that's how I look at it. :lol:
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Re: Separating business for VAT

Postby ChrisG » Mon Aug 27, 2018 10:18 am

Agree with prospero turn over is what goes through your till and when this hits £85,000 you need to register for VAT. Gross profit is sales minus cost of sales (what goes through your till minus what you paid for goods that you sell).
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