This site uses cookies. By continuing to browse the site you are agreeing to our use of cookies. To find out more about cookies on this website and how to delete cookies, see our Cookie Policy.
Analytics

Tools which collect anonymous data to enable us to see how visitors use our site and how it performs. We use this to improve our products, services and user experience.

Essential

Tools that enable essential services and functionality, including identity verification, service continuity and site security.

Where Taxpayers and Advisers Meet

VAT liability on 2nd business

Riverbank
Posts: 18
Joined: Thu Jul 19, 2018 1:20 pm

Re: VAT liability on 2nd business

Postby Riverbank » Mon Dec 10, 2018 10:48 am

Many thanks, Les.

I’m already registered for VAT for my original business as a writer. Do I have to register the second business - a theatre company - separately? (Turnover for theatre company will be nowhere near £85k) Or do I include theatre company VAT in my original writer business quarterly VAT returns?

robbob
Posts: 2678
Joined: Wed Aug 06, 2008 4:01 pm

Re: VAT liability on 2nd business

Postby robbob » Mon Dec 10, 2018 2:49 pm

Do I have to register the second business - a theatre company - separately?
As previously mentioned i would recommend using the correct terminology so as not to confuse others- this second business is not a company but is you as a sole trader with a different nature of trade from the other you as a sole trader.

Les has summed up the answer neatly here
VAT law considers the 'person,' not the business. So two sole trader businesses are a single 'person' for VAT purposes.
anything you do as a sole trader will fall under the existing vat registration number by default - there is no new vat number and as far as the vat office is concerned you are one entity and not two.
Note this would also extend to rental property that would be in your sole name too.

If you want to avoid vat registration for business number two you can look to use a limited company or go into partnership with someone else. Note you do have to be careful in this regard as hmrc have anti avoidance rules with regard to splitting businesses into different legal entities purely to avoid vat registration.

Riverbank
Posts: 18
Joined: Thu Jul 19, 2018 1:20 pm

Re: VAT liability on 2nd business

Postby Riverbank » Mon Dec 10, 2018 6:10 pm

Thanks so much, Robob. That's really clear now. I referred to "Theatre Company" as that's the nature of the business and "Company" is part of the business name. I don't necessarily want to avoid VAT with this new business. I just needed to know the position and correct way to operate.

pawncob
Posts: 4192
Joined: Wed Aug 06, 2008 4:06 pm
Location: West Sussex

Re: VAT liability on 2nd business

Postby pawncob » Tue Dec 11, 2018 5:29 pm

To clarify the position, you are a sole trader and you operate two businesses. For VAT and tax purposes you are one person trading under two names. All your turnover is subject to VAT. You may consider them as two distinct businesses, but HMRC will tax only one person -you.
With a pinch of salt take what I say, but don't exceed your RDA

Riverbank
Posts: 18
Joined: Thu Jul 19, 2018 1:20 pm

Re: VAT liability on 2nd business

Postby Riverbank » Tue Dec 11, 2018 9:08 pm

Thank you! Theatre companies seek finance to make shows eg - through private donations, crowdfunders and arts grants. Do you know what the VAT/income tax position is with these sources of finance? It wouldn’t be income to me personally but would go to hiring actors/crew, rehearsal space etc.

pawncob
Posts: 4192
Joined: Wed Aug 06, 2008 4:06 pm
Location: West Sussex

Re: VAT liability on 2nd business

Postby pawncob » Wed Dec 12, 2018 12:49 pm

Capital contributions are not liable to tax, and returns thereof are taxable only in the recipient's hands.
With a pinch of salt take what I say, but don't exceed your RDA

robbob
Posts: 2678
Joined: Wed Aug 06, 2008 4:01 pm

Re: VAT liability on 2nd business

Postby robbob » Wed Dec 12, 2018 8:54 pm

Hmmmmmmm - this could get complicated very quickly - i would recommend specialist advise to go through all aspects of how vat will work now for each business. i don't know where to start on the various areas that could be a complete nightmare in this regard.

Some random thoughts
If someone crowdfunds you and gets a free ticket to a concert that would be vatable supply - i suspect there could easily be a vat liability on funds received via crowdfunding.
Are services "of others you engage" vatable it will depend are you acting as discolosed agent / perhaps you could be.
could there be partial exemption issue - if the services provided are exempt - then possibly yes
could there be vat leakage if you bill out income on a vatable basis for artists costs - yes.
If you bill private individual customer £20 for juggler show and pay vat on that sale then pay the non vat reg juggler (working for you) £20 you are out of pocket via the vat as the default position.
Do you know what the VAT/income tax position is with these sources of finance? It wouldn’t be income to me personally but would go to hiring actors/crew, rehearsal space etc.
The problem is the default situation is that income paid to you is yours and vat may be due on that income - unlikely for grants but if you are providing any sort of service for money received it sounds dodgy.

Note it could go the other way that you can claim back input vat without having any vat leakage in which case this might be a good plan.

From a simplicity and financial safety point of view though for you - starting with a separate limited company that doesn't have the obligation to immediately be vat registered presuming turnover is modest may be the least headache option while offering you from protection - if for example a venue had you ticket sales money and then went bust on you - much better a liability like that not being in your personal name if that might be an issue.

can't say i have ever really dealt with a theatre group and vat so there are probably others better placed to offer some more practicable pointers rather than my random thoughts.

Oh i just found this random article too
https://www.taxation.co.uk/Articles/2017/02/14/336018/readers-forum-amateur-dramatics

Riverbank
Posts: 18
Joined: Thu Jul 19, 2018 1:20 pm

Re: VAT liability on 2nd business

Postby Riverbank » Thu Dec 13, 2018 9:58 pm

Capital contributions are not liable to tax, and returns thereof are taxable only in the recipient's hands.
That's a relief, thank you!

Riverbank
Posts: 18
Joined: Thu Jul 19, 2018 1:20 pm

Re: VAT liability on 2nd business

Postby Riverbank » Thu Dec 13, 2018 10:23 pm

You're giving me the jitters, Robbob :shock: !

The poster above said I wouldn't have a tax liability on capital investments such as grants, private philanthropic donations and presumably a crowdfunder. This money is used to create and stage a show at multiple venues if you mean that's a "service"?

Re VAT, yes, I'm already paying input VAT for festival registrations, printing costs etc, so it could balance out. Although I don't yet know if any of the artists and crew are registered for VAT. I doubt it.

Thanks for the limited company suggestion. For some reason my accountant has advised against that for this and my first business as a writer. The turnover for the new company in the first year will be around £50K.

Anyway, I will get more specialist advice. Many thanks for responding.

robbob
Posts: 2678
Joined: Wed Aug 06, 2008 4:01 pm

Re: VAT liability on 2nd business

Postby robbob » Fri Dec 14, 2018 9:45 am

The poster above said I wouldn't have a tax liability on capital investments such as grants, private philanthropic donations and presumably a crowdfunder. This money is used to create and stage a show at multiple venues if you mean that's a "service"?
I was most talking about "vat" and whether the cash you receive would result in you paying across vat on that income - if someone hands you cash as a vat registered individual (call it crowdfunding or whatever you like) and gets something in return for handing cash over whether it be a ticket to an event or a nice themed mug i would start from the viewpoint that that cash income you received is likely to be subject to vat unless you have a logical reason why it would not be.

It can be a similar problem with grants - if for example the grant is towards the cost of a production which you would be providing to body that has given you the grant - again if a service has been provided possibly vat due on that income.

So a grant
probably
isnt subject to vat but that is only probably and you need to fully understand the vat and tax consequences of every single bit of "cash" that come
you way even if it departs straight back out to someone else.

It's quite well summed up in the article linked below.
A simple donation, as opposed to advanced sales, is unlikely to be a business supply so it will fall outside the scope of VAT. However, the VAT rules for a donation are more restrictive than those for direct tax, and some items, such as newsletters and tickets, would probably disqualify it as a donation for VAT. To qualify, a donation must be “freely given with no expectation of anything in return”.
The poster above said I wouldn't have a tax liability on capital investments such as grants, private philanthropic donations and presumably a crowdfunder.
I wouldn't presume anything in this regard beyond what you know to be correct . I am not presuming any of your income is taxable but here are some simple examples where similar income streams are deemed to be "taxable income of the trade".

For example, if a rock band raises money from its mailing list to fund the recording of an album, the money paid, in effect, is an advance payment for the album, which the supporters obtain without any further payment. This must be a taxable receipt. The position depends on the facts, but case law gives some guidance.
A trading relationship between payer and recipient is not necessary to make it a trading receipt. The case of CIR v Falkirk Ice Rink Ltd [1975] STC 434 is pertinent here. The company operated an ice rink on a commercial basis and provided facilities for curling to the public for an admission fee. It also leased rooms at a commercial rent to a club.
The club made a donation of £1,500 to the company, fearing that the company would not otherwise be able to continue to provide curling facilities. The receipt was held as taxable because the company used it to supplement its trading revenue.
https://www.taxation.co.uk/Articles/2015/02/24/332721/revolution-finance


Return to “VAT & Excise Duties”