Hiya - I have a client who is a furniture retailer - they make the furniture and outsource the fitting. They want to start undertaking the fitting inhouse and want to set up a separate company to do this, logic being that the new company wont turnover more than £73k a year and won't have to be VAT registered. What are the rules on setting up new companies? Can they do this or would it be seen by HMRC as dodging tax??
I don't get this. If they brought the fitting inhouse, they wouldn't charge themselves VAT for fitting anyhow. There would be no invoices for fitting, The VAT would still be the same on the finished product.
Hope the experienced can point out what i'm missing here,
Hiya - sorry for not making my point clear. At the moment, say we fit a kitchen, we would calculate the fitting cost at say £1000 and then a self-employed fitter would carry out the fit and the customer would pay the fitter directly. If we were to fit this inhouse using our staff, as we are VAT registered, we would have to charge the customer £1200. The issue is more with having to increase the cost to the customer, and thereby potentially lose out on a sale.
You may be ok with this, if you can prove that it is a separate business. You may run into trouble if all the customers of company B are also customers of company A.
Funny just recently been researching this for a query Sheila raised earlierthis week.
Again, this sounds like Disaggregation, as the intention is to avoid registering for VAT
Quote from HMRC manual
Disaggregation is where a single entity business is intentionally divided into a number of separate legal entities to avoid a liability for VAT registration. Businesses may be disaggregated from the outset or after trading as a single entity for sometime.
VAT Act 1994, Schedule 1, Paragraph 1A provides that disaggregation occurs where two or more persons create or maintain artificially separate business activities in such a way that results in an avoidance of VAT registration.
Thanku so much for this information....I have never heard of disaggregation and it certainly seems relevant to what my client is proposing. I will research this in greater detail now.
