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Post Info TOPIC: VAT Disaggregation
Artois


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VAT Disaggregation
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Good morning all

My client (Ltd Co) has been approached by someone they know about possibly going into partnership together, I do not have all the details as yet but just wanted to run a few things by you to see what your initial thoughts on the situation are.

At the moment my client has his own Building Co from which the main works are extensions and construction projects for homeowners and his turnover is below the VAT threshold he also rents a warehouse which he uses for storage and as an office, he has been approached by someone he knows about setting up a partnership, from what I can gather the potential partner already has his own business (not sure on the entity as yet or if VAT registered) of which the main trade is the installations of kitchens.   

The plan for the partnership is to use a large part of my clients warehouse and to install plant/machinery and manufacture bespoke kitchens made to order for both members of the public as well as building contractors, although I do feel that this is a separate business for my client as far as VAT my first concern would be having both the Ltd and the new partnership both trading from the same address.

However my main concern would be the situation of the partner because of the similarities between his business and the proposed partnership with the limited information that I have at present I tend to feel that HMRC would see this as artificial separation even though it will be a new line of business.

I am aware that a lot more information is needed in order to make a decision but just wondered what others thoughts on this would be? 

 

 



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Doug

These are only my opinions of how I see things and therefore should not be taken as advice
Cheshire


Master Book-keeper

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Hi Doug
My understanding - HMRC would need to show the businesses have financial, organisational and economic links.   

Key word being the 'and'.

So in part I guess one of the fundamentals is the use of the same warehouse, which is the part you have queried.  

Question is firstly - can this warehouse unit be separated for the manufacture of the kitchens?  With its own independent entrance.    Needed on an operational level anyway - such a business will create an almighty mess of dust from the manufacturing process itself.   How would this work on a sub-let basis (permissions under lease terms and all that)?   How would it work with for the provision of power supply/waste/water etc?   Would your Limited client charge the partnership rent?   

Just some initial thoughts. Be very interested in others views, especially from Les.

I see lots of potential issues other than VAT. eg

What would happen in the event of a fall out (#) between the parties?

Sub let issues

Partnership pays rent to Ltd, but Ltd doesnt pay head lease.

Partnership doesnt pay rent.

Why partnership rather than limited

Any staff sharing?



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 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
Leger


Master Book-keeper

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Cheshire wrote:

Why partnership rather than limited

 Hi Joanne & Doug

Definitely worth a consideration, could be less messy than a partnership.



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John 

 

 

 Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.
leshoward


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Agreeing with the above, I am adding a couple of comments:
If the two businesses share premises, equipment and stock and staff, they will be vulnerable to HMRC challenge. If they only share premises, with clearly distinct sections, then your position is stronger.
And, do note, if HMRC issue a formal notice, stating that there are financial and economic and organisational links, then an appeal will only be allowed if HMRC were "unreasonable" in issuing such a notice. It is not enough to disagree with them!
Any arrangement should be formalised in a written agreement.


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Artois


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Cheers guys, thanks for the input

Certainly some very good points mentioned and quite a few that I had not considered, the use of the warehouse and the lease should not be a problem but keeping a separate entrance and separate areas/facilities may. 

I think the next step is for me to set up a meeting to discuss their plans further and go from there.

I shall return with an update,  thanks again.



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Doug

These are only my opinions of how I see things and therefore should not be taken as advice
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