Diversify Company or register a Self Employed Business

[mcai9dm3]

For a while now I have been looking at a possible move away from IT Consultancy into another (more creative) are such as Photography. Since I am not ready to quit contracting just yet and hoped to build this up over 2 to 3 years, I emailed my accountant about the best way forward.

He suggested that registering a new self employed business was probably the best way forward as I would not have to charge VAT to the end client (something I would have to do if it was run through my limited company).

The downside as far as I can tell doing it that was would be that I would have to buy the equipment personally (and anyone who is into photography will tell you, the kit is not cheap).

He further advised that my Limited company could buy the equipment as assets and I would rent it off my Limited company. This kind of makes sense but I was curious as to how I would come up with the monthly rental figure?

Also, I would be interested to hear anyones thoughts on this or if anyone has done something similar.

Cheers.

[Nixon Williams]

It is not as simple to avoid charging VAT by simply setting up a separate business. Assuming that you own 100% of the shares in your limited company, it is likely that HMRC will regard the two activities as one and so wish to recover VAT from the photography side.

Alan

[mcai9dm3]

It is not as simple to avoid charging VAT by simply setting up a separate business. Assuming that you own 100% of the shares in your limited company, it is likely that HMRC will regard the two activities as one and so wish to recover VAT from the photography side.

Alan

Hi Alan.
Thanks for the response.

I am struggling to see how that could possibly the case as one is a limited company registered for VAT and the other is registered as self employed which according to the attached document states that as long as revenue is less than 56K, you don't have to register the second business for VAT.

http://www.hmrc.gov.uk/leaflets/se1.pdf

How can the 2 businesses be treated as one?

Cheers

[Nixon Williams]

How can the 2 businesses be treated as one?

Cheers

HMRC may well take the view that you are operating one 'business' even though one is a limited company and one as a sole trader.

They are keen to stop this as otherwise it would be possible to avoid VAT by splitting into numerous businesses.

It is possible the HMRC might not spot what you do, but I would not advise it and I do know of one similar case where the business was split between husband and wife to keep below the VAT threshold but the VAT people did not accept this and VAT was levied on the entire enterprise.

I would advise caution and probably keep it all under one roof, this should be cheaper although until you are established, you would suffer VAT on your photography side.

Perhaps your accountant was eyeing up two sets of fees!

Alan

[mcai9dm3]

HMRC may well take the view that you are operating one 'business' even though one is a limited company and one as a sole trader.

They are keen to stop this as otherwise it would be possible to avoid VAT by splitting into numerous businesses.

It is possible the HMRC might not spot what you do, but I would not advise it and I do know of one similar case where the business was split between husband and wife to keep below the VAT threshold but the VAT people did not accept this and VAT was levied on the entire enterprise.

I would advise caution and probably keep it all under one roof, this should be cheaper although until you are established, you would suffer VAT on your photography side.

Perhaps your accountant was eyeing up two sets of fees!

Alan

I see what you are saying and I would be keen to take a more cautious path. It would also mean that I could buy the equipment through my limited company and not have to worry about the rental side. The only thing that would then slightly concern me would be the "duality of purpose" of the equipment. Not setting up a separate business would invite questions about whole and exclusive use which would be avoided if a separate, specialist photography company was set up.

I wish these rules were black and white instead of shades of gray

Cheers for your thoughts.
Duncs