Forced to incorporate?
Discussion
Currently I'm a sole trader and am VAT registered because (a) I frequently buy goods/services in and wish to reclaim VAT on those, (b) my customers are businesses, so can reclaim VAT.
I now wish to start a second business which will be fee-based and the customers will be the public, so VAT will be a pure hindrance, putting my prices up by 17.5% and so making it uncompetitive.
As I understand it, to have one business that's registered and one not, one of them will have to be a limited company. Hence there'd be VAT-registered Business 1 Ltd, of which I'd be a director and employee, and non-VAT-registered Business 2, where I'd be a sole trader.
Is that the only solution?
I now wish to start a second business which will be fee-based and the customers will be the public, so VAT will be a pure hindrance, putting my prices up by 17.5% and so making it uncompetitive.
As I understand it, to have one business that's registered and one not, one of them will have to be a limited company. Hence there'd be VAT-registered Business 1 Ltd, of which I'd be a director and employee, and non-VAT-registered Business 2, where I'd be a sole trader.
Is that the only solution?
A partnership set up would also work.
Unfortunately, once you are operating as a VAT registered sole tradership, any new (even unrelated) sole trader activities will also have to charge VAT too. It's the individual who is registered, not the business. The same number would be used for both activities and a single VAT return completed with both sets of combined sales and costs included in the relevant boxes on the return.
Unfortunately, once you are operating as a VAT registered sole tradership, any new (even unrelated) sole trader activities will also have to charge VAT too. It's the individual who is registered, not the business. The same number would be used for both activities and a single VAT return completed with both sets of combined sales and costs included in the relevant boxes on the return.
Simpo Two
You could look at this postively rather than 'forced to incorporate'. There may be some tax benefits, especially if the new sole trader company generates a reasonable income, as funds can be left in the Ltd company, for deferred bonuses, future dividends etc. This may more than offset the (slight) increased costs of running a Ltd company. So if you have a bumper year in both businesses you can spread some of the personal tax liabilities into the following year. EricMc would obviously be best placed to advise or your current accountant.
Best of luck with dealing with the public!!!
davidy
You could look at this postively rather than 'forced to incorporate'. There may be some tax benefits, especially if the new sole trader company generates a reasonable income, as funds can be left in the Ltd company, for deferred bonuses, future dividends etc. This may more than offset the (slight) increased costs of running a Ltd company. So if you have a bumper year in both businesses you can spread some of the personal tax liabilities into the following year. EricMc would obviously be best placed to advise or your current accountant.
Best of luck with dealing with the public!!!
davidy
Eric Mc said:
A partnership set up would also work.
Thanks - can you explain a little more about that please?DavidY said:
There may be some tax benefits etc
There may some possibility for inter-business - um - synergy, but each one is only expected to turnover about £10K pa, so not much scope for anything very clever. All I'm seeing is extra complexity, two lots of accounts to pay for and more responsibility. I have no desire to be a 'company director' - I already have the Jag anyway!DavidY said:
Best of luck with dealing with the public!!!
Actually they're much easier to deal with than Corporations!Partnerships have a kind of separate legal identity to the individual partners (sort of like a limited ccopmpany but not as clear cut).
For VAT purposes, the VAT regulations do recognise this separate identity and will therefore allow a partnership (which may already contain individual partners who are VAT registered in their own right) to operate unregistered so long as the partnership income stays below the compulsory registration thresholds.
Obviously, the VAT people CAN, if they think that the partneship is being deliberately set up to avoid registration, force the new trade to be included in a pre-existing VAT registration. This rarely happens, in the real world.
For VAT purposes, the VAT regulations do recognise this separate identity and will therefore allow a partnership (which may already contain individual partners who are VAT registered in their own right) to operate unregistered so long as the partnership income stays below the compulsory registration thresholds.
Obviously, the VAT people CAN, if they think that the partneship is being deliberately set up to avoid registration, force the new trade to be included in a pre-existing VAT registration. This rarely happens, in the real world.
Simpo Two said:
Currently I'm a sole trader and am VAT registered because (a) I frequently buy goods/services in and wish to reclaim VAT on those, (b) my customers are businesses, so can reclaim VAT.
I now wish to start a second business which will be fee-based and the customers will be the public, so VAT will be a pure hindrance, putting my prices up by 17.5% and so making it uncompetitive.
As I understand it, to have one business that's registered and one not, one of them will have to be a limited company. Hence there'd be VAT-registered Business 1 Ltd, of which I'd be a director and employee, and non-VAT-registered Business 2, where I'd be a sole trader.
Is that the only solution?
Without knowing what profits and other factors, it's difficult to say. But, i'd suggest you speak to your current accountant, because it may be more worthwhile incorporating the current business, transferring the VAT number, and then running the new trade as a sole trader?I now wish to start a second business which will be fee-based and the customers will be the public, so VAT will be a pure hindrance, putting my prices up by 17.5% and so making it uncompetitive.
As I understand it, to have one business that's registered and one not, one of them will have to be a limited company. Hence there'd be VAT-registered Business 1 Ltd, of which I'd be a director and employee, and non-VAT-registered Business 2, where I'd be a sole trader.
Is that the only solution?
However, it still may be worth you while to have two limited companies. Definately seek some advice.
thewave said:
it may be more worthwhile incorporating the current business, transferring the VAT number, and then running the new trade as a sole trader?
That was the plan. But I'll investgate the partnership angle too. When it comes to business I'm a firm beleiver in keeping things simple and margins high.Gassing Station | Business | Top of Page | What's New | My Stuff