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Where Taxpayers and Advisers Meet

Is this Artificial separation?

catergal
Posts: 1
Joined: Fri Jan 04, 2019 5:45 pm

Is this Artificial separation?

Postby catergal » Fri Jan 04, 2019 5:47 pm

Myself and two partners own a company that operates a catering outlet and we have been offered the opportunity to open another one.

We are planning to set up a separate limited company for this new operation and I am wondering whether we would get caught by artificial separation?

The same three directors will own both businesses but that will be the only connection. We will have a separate bank account, separate accounts, separate staff with no cross over, different supply lines, different menus and there will be no money or goods that will move between them all.

I don't want to get in trouble but at the same time it would be nice to be able to get the first £80k or so before we have to register for vat.

The guidance online seems confusing as some things seem to suggest that the organisational links of the directors mean we would be caught by it and other suggest that there needs to be links under financial, organisational and economic links.

pawncob
Posts: 4278
Joined: Wed Aug 06, 2008 4:06 pm
Location: West Sussex

Re: Is this Artificial separation?

Postby pawncob » Fri Jan 04, 2019 11:25 pm

https://www.gov.uk/hmrc-internal-manuals/vat-single-entity-and-disaggregation-manual/vatdsag03150

The good stuff is hidden by FOI.

In most cases a separate legal entity is enough to prevent disaggregation being claimed.
With a pinch of salt take what I say, but don't exceed your RDA

Trevor S
Posts: 23
Joined: Tue Jan 01, 2019 12:37 am

Re: Is this Artificial separation?

Postby Trevor S » Sat Jan 05, 2019 12:28 am

Its always a bit of a grey area... It looks like you’ve already found HMRC's published guidance, and their internal manual (i.e. written for HMRC staff use) is understandably heavily redacted. Even case history isn’t entirely helpful, as there will be situations where the Tribunals have reached decisions that may seem unexpected!

Perhaps another indicator worth considering – ask yourself why you are looking to do this. Presumably the simplest structure would be to include the new outlet within the existing company. So is there a sound commercial reason for separate companies, other than a potential VAT benefit? If the VAT position seems to be the only logical explanation, HMRC might be more likely to investigate?

les35
Posts: 547
Joined: Wed Aug 06, 2008 3:09 pm

Re: Is this Artificial separation?

Postby les35 » Mon Jan 07, 2019 5:10 pm

Given the distinctions between the existing and the new business, I think HMRC would struggle to challenge your arrangement. But you will want some advice to review the arrangements, and perhaps highlight and address any weaknesses.


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