Splitting business to fall below VAT threshold

Splitting business to fall below VAT threshold

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s2sol

Original Poster:

1,223 posts

170 months

Tuesday 10th December 2019
quotequote all
I'm a subcontractor and do a fair amount of work for a sole trader who is looking to retire. He's offered to sell me the business. There's a fair distance between us as to what it's worth, but that's something we could sort out ourselves.

The business is VAT registered, and probably 70% of the customers aren't. However, there are two parts to the business, as far as I can see. It's broadly analogous to vehicle body repairs on one side, and mechanical repairs on the other. The body repair side's costs are probably 85% labour and 15% parts. The other side is more evenly balanced.

Is it feasible to operate as 2 discrete businesses sharing the same premises, with both businesses falling below the vat threshold? Clearly, one of the businesses would have to pay the rent and utilities, and charge the other. There would be one FT member of staff for each business, and possibly an apprentice.

shopper150

1,576 posts

193 months

Tuesday 10th December 2019
quotequote all
It's feasible. Until you're investigated.

Olivera

7,068 posts

238 months

Tuesday 10th December 2019
quotequote all
If they currently operate as one business in the same premises, with the same staff, then it sounds a pretty a nailed on case of VAT disaggregation. Which means no.

nickv

142 posts

123 months

Thursday 12th December 2019
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you really dont want a bodyshop or workshop come to think of it non vat registered

If you give any large invoices to any of your vat regd customers they wont be able to claim the vat back

Invoices in the motor trade can soon come to a considerable amount, if you bill customer for a load of parts on a job and they are vat registered they wont be impressed if they cant put your invoice in with their vat return.

If the bodyshop does any insurance work and you have a vat registered customer, whom by default pays the vat element of the repair, you wont be able to supply a vat only invoice for them, and you would end up eating the vat on such a job.

s2sol

Original Poster:

1,223 posts

170 months

Thursday 12th December 2019
quotequote all
Thanks, Nick. It's not a body shop and workshop, but broadly similar. I've had a look at the disaggregation rules, as advised above, and I think it probably isn't for me.