Contractors' Questions: Do my tech limited company’s two side-businesses have to account for VAT?

Contractor’s Question: If I have a limited company that is registered for VAT but has a couple of side-businesses which are fully owned by the limited company, does that mean I charge / claim VAT on those sales as well?    

So 'Computer Consultancy,' say, is the limited company. 

'Super Servers' is a 'trading as’ a business. 

'Software Guys' is also ‘trading as’ a business.    

So in the case above would all three charge VAT on sales and claim back VAT or just things sold under the limited company (‘Computer Consultancy’) directly? Please note, all the names are fictious so you can’t report me to HMRC if I’ve already done something wrong! 

Expert’s Answer: I’m not a specialist in VAT and you should consult one before acting on any guidance provided here, or elsewhere.  

Furthermore, it is not clear from your question whether the two side-businesses are limited companies or unincorporated entities. It’s also not totally clear whether the side-businesses trade independently or as ‘part and parcel’ of the limited company.

Note the £85,000 VAT threshold

But it can be quite safely assumed that their individual turnovers are less than £85,000 a year, or they would have already registered for VAT.  

If the two side-businesses are unincorporated, and under the common control of the VAT-registered limited company, they are not separate legal entities and as such, their trade will be viewed as being part and parcel of that of the limited company.  

The two side-businesses will need to account for VAT on their supplies, whether their individual turnovers breach the VAT threshold or not, as they cannot be separated from the limited company. They can of course also reclaim VAT on their expenditure. 

If your two side-businesses are limited companies then...

The situation would be different if the two side-businesses are limited companies. As separate legal entities, they would only have to account for VAT, if they breached the VAT turnover threshold or had reason to voluntarily register.  

Limited companies, under common control and ownership, can opt to form a VAT group in order that VAT is not charged on the transactions between themselves, but there are strict conditions that need to be met to create and join a VAT group. Please note, this creation and joining of a VAT Group is also not something that should be done without seeking advice. Good luck! 

The expert was Helen Christopher, a chartered accountant specialising in the IT contractor sector.

Thursday 8th Feb 2024
Profile picture for user Helen Christopher

Written by Helen Christopher

Chartered accountant Helen Christopher is a former head of finance & accounting and a former chief operating officer, who has worked for 28 years in corporate roles. Helen qualified as an accountant in 1995 with Price Waterhouse (now PwC) – the year she became a member of the ICAEW, and seven years prior to her becoming an FCA. Also a local magistrate for the Department of Justice, Helen specialises in tax, accounting and HMRC advice for small companies and their owners. 
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