VAT on quasi franchise sub businesses

[3point14]

I am working on an idea to deliver a home service in a number of areas through one employee per area and wonder whether I could set this up as to keep each area under the VAT threshold.

Now obviously if 10 people each had small businesses where turnover was less than the threshold, they would not have to register. If there is one company running it all then obviously it has to register. However, with the main expenses being labour, adding 20% to the cost of the service would be severely detrimental both to the success of the venture and the likelihood of my investing in it.

Any pointers most appreciated.

[section 44]

if 10 people each had small businesses

Out of interest, who would be the 10 people and what (if anything) would be their connection/relationship with you? Hence, how would you benefit from other people being in business? If, for example, these 10 other businesses would be franchisees of your business then I struggle to see the benefit as there would be back-to-back supplies.

[les35]

I am working on an idea to deliver a home service in a number of areas through one employee per area and wonder whether I could set this up as to keep each area under the VAT threshold.

Any pointers most appreciated.

My concern would be that you may be deemed to be making the entire supply, and the turnover of all ten accumulated for VAT purposes. This would remove the perceived benefit of the scheme.
You might also hit contractual problems - who is liable if something goes wrong?

(I would suggest you look at setting up a loose network of specialists, rather than anything so formal as you describe.)

[3point14]

if 10 people each had small businesses

Out of interest, who would be the 10 people and what (if anything) would be their connection/relationship with you? Hence, how would you benefit from other people being in business? If, for example, these 10 other businesses would be franchisees of your business then I struggle to see the benefit as there would be back-to-back supplies.

The set up could perhaps more traditionally be a company with 10 employees, each providing a service within a geographical boundary or sales area. Under this scenario, the company far exceeds the VAT threshold and consequently VAT is chargeable.

However, it would be perfectly possible to have a "one man band" company or even self employed individual operating in isolation in one area. It is likely, at least in the early stages, that this operation would turnover less than the VAT threshold.

So my quandary is to in some way benefit from the variance between what employed labour would work for versus the return an owner / operator would require.

The workers would not have the capital to invest in setting up their own operation. They would be provided by me. I'm just trying to think of a way, whatever that may be, which would allow the service to be provided VAT free. Perhaps franchising and financing is a solution ?

[3point14]

I am working on an idea to deliver a home service in a number of areas through one employee per area and wonder whether I could set this up as to keep each area under the VAT threshold.

Any pointers most appreciated.

My concern would be that you may be deemed to be making the entire supply, and the turnover of all ten accumulated for VAT purposes. This would remove the perceived benefit of the scheme.
You might also hit contractual problems - who is liable if something goes wrong?

(I would suggest you look at setting up a loose network of specialists, rather than anything so formal as you describe.)

I totally agree.

In some respects, what I envisage is akin to individually owned estate agents (not this line of business though) operating under a common name. Not quite franchises but neither totally separate. The problem in my case is that the common name would be the provider of the capital for each of the satellite operations.

[Generix]

Ok, so situation is:

Co1 (your co) will grant each trader a license to use name and maybe get some income as contribution for promoting and marketing the brand name etc. (or this could be in one lump sum as license fee) and will additionally grant a loan to each startup.

I think that would probably be ok - the 'economic ties' test would be the only one broken, the way I see it though, Co1 would likely end up VAT registering anyway due to breaching threshold. The other businesses would need to be run and managed by the respective traders ( or if they set up their own Ltds you shouldn't hold shares)

As with all VAT registration avoidance questions here, it is usually possible, but whether it is worth the time/cost/risk is another matter.

This is one of the less risky ones I've seen; given there will actually be a number of seperate traders controlling their own businesses (from my assumptions)