• Visitors can check out the Forum FAQ by clicking this link. You have to register before you can post: click the REGISTER link above to proceed. To start viewing messages, select the forum that you want to visit from the selection below. View our Forum Privacy Policy.
  • Want to receive the latest contracting news and advice straight to your inbox? Sign up to the ContractorUK newsletter here. Every sign up will also be entered into a draw to WIN £100 Amazon vouchers!

Need a strategy for staying in the flat rate VAT scheme

Collapse
X
  •  
  • Filter
  • Time
  • Show
Clear All
new posts

    Need a strategy for staying in the flat rate VAT scheme

    My wife and I are both directors of the same limited company working for different clients. This arrangement has worked fine for many years and saved the expense of running two separate companies. However as a result of me finding a lucrative contract this year, we will go over the flat rate VAT limit and would therefore need to leave the scheme in September when we reach our anniversary of joining the scheme.

    I’m keen to stay in the scheme as it has generated a few thousand pounds of extra profit each year


    What do people think of this strategy:

    1) I create a new limited company and we now separate our work going forward (my contract is due for renewal next month so this split could start asap)

    2) My new company registers for VAT and joins the flat rate scheme

    3) My wife's company would still exceed the limit this year but we would ask HMRC for permission to stay in the flat rate scheme on the basis that the lucrative contract for that company had now finished and future company earnings would definitely be below the limit. (the final VAT return before September would already show a marked drop in turnover after separating into two companies)

    I understand HMRC does not like associated companies, but both our companies would be VAT registered, the work we do is very different (and for different clients), and one company would not be under the direction or control of the other. Even if HMRC refused to allow my wife’s company to remain in the scheme we would still be better off at least having one of our companies in the scheme.


    What are people’s thoughts on that approach?

    Thanks for your help!

    #2
    How would you handle the shareholding of each company? I assume your current one is 50/50 so the new one will be too.

    As to how HMRC would view it, starting a second company to split unrelated business activities into their own entities for risk and admin separation purposes isn't likely to be that rare, it doesn't seem likely they would be upset about it, you can easily explain sound business reasons.

    I would however question the financial benefits, you will need to do 2x the accountancy, company submissions and returns, I'm sure you've considered that though.

    Comment


      #3
      Don't even try it - it looks suspicious.
      "You’re just a bad memory who doesn’t know when to go away" JR

      Comment


        #4
        Originally posted by SueEllen View Post
        Don't even try it - it looks suspicious.
        +1. Your company has clearly reached the point where the flat rate scheme is not required (as officially the only thing it saves is administration). Moving a significant amount of the turnover to another just to keep the scheme going ain't going to go down well...
        merely at clientco for the entertainment

        Comment


          #5
          Thanks all.

          The shareholding would be 50/50 in both companies.

          I know the flat rate is officially there to simplify admin, but it did generate 6k of additional profit for us last year hence why its definetly worth the expense of running two companies if there is a way to stay in the scheme

          Comment


            #6
            Won't fly. Are there commercial reasons other than tax saving? HMRC will challenge otherwise.

            Search "vat disaggregation"

            Easy to say now, but you should have had 2 companies in the first place.

            Comment


              #7
              Valid reason for second company.......

              I am so sorry to hear that you and your wife are having marital difficulties.......

              In this situation running separate companies is the logical thing to do with each holding 100% of your own companies. Both on Flat Rate if they qualify on turnover.

              Of course I hope you resolve your issues in the near future (after complete tax year maybe?) but still keep the companies running separately until you decide to either merge them or set up a holding company over the top.

              Comment


                #8
                I can see how the VAT disaggregation rules would be a concern if one business was attempting to avoid registering for VAT but in my case both companies would be VAT registered.

                The FRS rules in notice 733 do state though that associated companies are not eligible to join the FRS but it goes on to say....

                "Example 2
                A husband and wife are each separately VAT registered in different types of business. Even if they share premises, provided this is charged at a market rate, they will not be ‘associated’."


                Splitting into two companies would make sense from a commercial and admin perspective as it would make it much easier to see how each company was performing, so I think i have a sound commercial argument for the split (and I agree we should have had two companies from the outset but I was never expecting to have this lucrative one year contract).

                Comment


                  #9
                  Originally posted by dingdong View Post
                  Need a strategy for staying in the flat rate VAT scheme
                  Originally posted by dingdong View Post
                  Splitting into two companies would make sense from a commercial and admin perspective
                  I agree with Alan@BA. If there was a sound commercial reason to form the joint venture, what has now changed (other than the VAT position) to make disaggregation a sound commercial decision? The answer, of course, is nothing, and this will be blatantly obvious to HMRC. You're simply looking for a plausible excuse.

                  Comment


                    #10
                    Take the extra money and enjoy it. Oh and start claiming the VAT on your sandwiches.
                    ⭐️ Gold Star Contractor

                    Comment

                    Working...
                    X