Need a strategy for staying in the flat rate VAT scheme Need a strategy for staying in the flat rate VAT scheme
Page 1 of 2 12 LastLast
Posts 1 to 10 of 18
  1. #1

    Still gathering requirements...


    Join Date
    Apr 2015
    Posts
    79

    Default 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. #2

    Banned


    Join Date
    Jul 2008
    Location
    Atlantis
    Posts
    8,066

    Default

    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.

  3. #3

    My post count is Majestic

    SueEllen's Avatar
    Join Date
    Nov 2005
    Location
    in the Park
    Posts
    31,973

    Default

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

  4. #4

    bored now

    eek's Avatar
    Join Date
    Jun 2010
    Location
    😂
    Posts
    26,997

    Default

    Quote 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...

  5. #5

    Still gathering requirements...


    Join Date
    Apr 2015
    Posts
    79

    Default

    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

  6. #6

    Contractor Among Contractors


    Join Date
    Mar 2007
    Posts
    1,590

    Default

    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.

  7. #7

    Still gathering requirements...


    Join Date
    Mar 2012
    Location
    Wherever I lay my hat
    Posts
    65

    Default 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.

  8. #8

    Still gathering requirements...


    Join Date
    Apr 2015
    Posts
    79

    Default

    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).

  9. #9

    Default

    Quote Originally Posted by dingdong View Post
    Need a strategy for staying in the flat rate VAT scheme
    Quote 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.

  10. #10

    Contractor Among Contractors

    PerfectStorm's Avatar
    Join Date
    May 2014
    Location
    Yes, I have asked my accountant.
    Posts
    1,395

    Default

    Take the extra money and enjoy it. Oh and start claiming the VAT on your sandwiches.

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •