2 different accountants, 2 different opinions, whos correct?

[shelf1985]

Hi Guys,

just after a bit of advice if you would oblige.

up until June this year I had a car only sales business for 2 years, LTD company and VAT registered , accountant in place paying VAT under used car margin scheme. it wasn't really profitable I wasn't getting any incoming VAT and was paying lots out - never mind. I ceased trading and closed this LTD company in june, deregistered for vat and decided to sell car parts only as a sole trader.

so now from June 2018 car sales business closed and enjoying a much simpler life no longer needing an accountant and trading as a sole trader, well maybe not I didn't expect to even need to think about VAT and fully expected to just do it all myself as a sole trader but in November this year a good problem to have lots of turnover and due to this I decided to set up as LTD again and use a new accountant (I did approach the old accountant for advice and to reengage with them but their new quote for services was higher than I was ok with)


so...

company A - car sales only VAT reg closed June 2018 (this is probably not relevant)
SOLE TRADER car parts only - June 2018 - November 2018 turnover 60k
NEW company B car parts only exactly same business as the sole trader - currently trading as from November 2018 , turnover 20k to date


so onto the question, my first accountant says I need to register for VAT asap by combining the sole trader and new company turnover and even though they are different entities I am in murky water with HMRC if I don't.


my new accountant says nope, now that I am a new LTD company once again I am a new entity and sole trader is not relevant and I am only 20k into the vat turnover and even though I obviously will hit the threshold I should wait until the new company has hit it so about another 5 months estimate.

not sure if my old company technically being in the same industry is relevant but have included it anyway, obviously that was cars only and I stopped that completely, its probably more the sole trader and new company that's important - not looking to do anything dodgy or avoid paying whats owed, don't want to fall foul of any laws.

thanks for reading I know I need to speak to HMRC... its a bit disappointing that one of these professional accountants is wrong and just looking for further advice at this stage to arm myself with before I hop onto the HMRC switchboard.

no apologies for spelling/punctuation etc im crap at writing :-)

thanks in advance

[JulianPH]

I'm not a VAT expert or an accountant, but from a legal perspective VAT is applicable on supplies from a legal entity. The old limited company and your sole trading activities should therefore not be relevant to the VAT status of your new limited company.

However, I would be very surprised if HMRC did not have measures in place to stop people jumping from placing business with different limited companies they controlled (and also as a sole trader) to avoid paying VAT.

Eric will be able to give you a definitive answer.

[shelf1985]

Thanks for taking the time to reply, yes i would be surprised as it seems a little too good to be true. People would surely abuse it and trade as a ltd then close when threshold reached, new sole trader or company - rinse and repeat endlessly!

[Alpinestars]

If you’re close to the limit as a sole trader, HMRC may ask questions as to motive etc,, but in principle, the clock starts again once you incorporate/run as a ltd company.

[MrJuice]

JulianPH said:

I'm not a VAT expert or an accountant, but from a legal perspective VAT is applicable on supplies from a legal entity. The old limited company and your sole trading activities should therefore not be relevant to the VAT status of your new limited company.

However, I would be very surprised if HMRC did not have measures in place to stop people jumping from placing business with different limited companies they controlled (and also as a sole trader) to avoid paying VAT.

Eric will be able to give you a definitive answer.

And had a similar query about ten years ago for something I was doing at the time. Spoke to an old friend who was a VAT inspector but had gone into private sector. He said this was known as 'artificial separation' and could catch up with you

[Alpinestars]

MrJuice said:

And had a similar query about ten years ago for something I was doing at the time. Spoke to an old friend who was a VAT inspector but had gone into private sector. He said this was known as 'artificial separation' and could catch up with you

This is not separation from what OP says. It’s succession.

Artificial separation is where the trade is bifurcated along artificial lines and as a result two trades are carried on.

[Mr Pointy]

It's possible that you would fall foul of the disaggregation rules - these are in place to prevent someone carrying on multiple businesses that essentially do the same thing & treating them as separate entities.

What isn't clear is if you are continuing with the ST business or terminating that & going forward just with the limited company. If you are just going to run the limited company then why not register for VAT since you're going to have to do it anyway in a few months. If you are continuing as a ST & as a limited company then you'll almost certainly get pinged by the disaggregation rules.
https://www.crunch.co.uk/knowledge/tax/vat-disaggr...

[shelf1985]

thanks for everybody's help so far, without quoting to answer the question above we have worked out that the flat rate VAT scheme is the one that will be best for me, the advice from the accountant was that if I can get another 4-6 months VAT free then its a no brainer (I agree) im going to have to pay 7.5% for the foreseeable so why not drag it out (the nature of my competitors and how I'm set up currently means the VAT will be swallowed by me, its an eBay shop so it cant be added separately anyway) and there's no VAT on what I buy hence the flat rate scheme,

the sole trader enterprise ceased the day I started trading as LTD.

as I said I have turned over close to the threshold SOLE TRADER>LTD so if I need to register now no problem at all I have had a good run, but if I can get another 4-6 months trading VAT free (if I'm legally entitled) its a not insignificant amount of tax saved,

I will phone HMRC at some point and update what they say for completeness as this may help somebody else out one day, if anybody else has any experience on this please do feel free to add.

[shelf1985]

thanks for the link, I guess my question to HMRC is something along the lines of is it acceptable to disaggregate once, in an honest way at the start of the change over from sole trader to ltd as I'm sure many people do every year to then never go back and stay LTD.

[Eric Mc]

Artificially splitting or terminating a business just to get around VAT thresholds is what disaggregration is trying to stop.

If the motive behind how the way the various elements of your trading activities are arranged is purely to keep VAT at bay, HMRC might need convincing.

On the other hand, if you can prove to HMRC that the businesses you have set up and run were GENUINELY separate with little or no connectivity between them, then you MAY be able to keep one or more out of the VAT system.

You can be walking a fine line when trying to justify what you have done to HMRC - and the consequences of failing to convince HMRC of your argument can be expensive.