Could anyone help me please? Sorry if it's a silly question.
Sole Trader runs a small business with its own name. Another sole trader runs a small business with its own name. These two sole traders run a (non-limited) partnership together, with its own name. Each business started at a different time and none have reached the VAT threshold yet, but if all three added together they would be approaching soon. What is the position for these three businesses (or these two individual guys) reaching the VAT threshold? Is each business treated separately with regard to the VAT threshold? They have not been artificially separated as they have always been three separate businesses. The clients themselves seem to think that they need to add turnover for all three businesses. Can I give them a definitive answer? Do I need to get clarification from HMRC.
Hi Hel...no such thing as a silly question. My understanding is that all three businesses are separate legal entities and as such the turnover is not added together, though if they set up another partnership I think the partnerships would have to be added. Hopefully someone like Les will be able to confirm this.
Thank you very much for your replies. So, if I quote these two statements (from the link above), would you agree that each of the three businesses is irrefutably distinct and can each have its own VAT threshold? The two statements are almost contradictory but the second seems to confirm that the partnership would be treated as a separate "person".
VAT registered person explained It is the person, not the business, who is registered for VAT. A person can be either an individual or a legal person or entity ... each VAT registration covers all the business activities of the registered person.
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.
Thank you
Hel
Edited for ellipsis
-- Edited by HellsBells on Monday 22nd of September 2014 09:27:00 PM
Doesnt the situation in part also depend on what the three businesses do and specifically why there is a partnership alongside two sole traders if they are all in similar trades - my understanding is that you would need to ensure HMRC wouldnt see the matter as related for vat aggregation purposes. If there is commercial justification for keeping the businesses separate (other than avoiding Vat), that should be ok - maybe the owners are suggesting you add all the T/o together because someone has suggested there would be no commercial justification? If they are all completely different trades then that shouldnt be an issue. Im sure Ive read something about this from Les somewhere (or someone else)
__________________
Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
Thank you for your reply. What you say makes a lot of sense and there are clearly some more questions I could ask of the clients. I have googled some of the terms you use and I have tried searching the forum for more info but I'm still going round in circles a bit. Hopefully Les will come along soon. If not, then I should probably get further info from clients and then speak to HMRC.
Gawd, I don't like ambiguity. And there was me thinking bookkeeping was going to be all black or white too
Thank you
Hel
-- Edited by HellsBells on Monday 22nd of September 2014 11:58:10 PM
I have always been under the understanding that if someone has more than one business and one is Vat registered the other has to be too
this is an article from HMRC
Do not avoid registering for VAT by artificially separating business activities
If you run more than one business the sales in all those businesses must normally be added together to determine whether or not you must register for VAT.
However, if you are involved in the running of several separate legal entities, you may not need to combine the sales of those businesses to find whether you need to be VAT registered.
If HMRC decides that you artificially separate one business into smaller parts to avoid registering for VAT, it can decide that the entire business is a single taxable person and therefore must be registered for VAT.
Situations that HMRC may consider a single taxable person for VAT purposes include:
Separate entities selling to registered and unregistered customers. The VAT registered business sells only to VAT registered customers and the business not registered for VAT sells to customers who are not registered for VAT.
The same equipment or premises being used by different entities on a regular basis. The premises and/or equipment are owned by one of the parties, who charges rent to the others. This situation may occur in businesses such as launderettes and takeaway food operations.
Splitting up what is usually a single sale. This is common in industries such the bed and breakfast trade, where one business supplies the bed and another the breakfast.
If you deliberately avoid registering for VAT, you may be liable to a penalty. For serious offences, the matter will be investigated and you may be prosecuted.
The partnership would be considered a separate entity for this purpose however the other things that Sharon and Jo mention have to work too. Are they all effectively the same business, do they have shared premises, equipment etc?
