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Where Taxpayers and Advisers Meet

Avoiding VAT registration for 5 holiday homes (FHL)

stephenco
Posts:6
Joined:Sun Feb 10, 2019 7:57 pm
Avoiding VAT registration for 5 holiday homes (FHL)

Postby stephenco » Tue Jul 04, 2023 10:20 am

My wife and I have purchased 5 holiday homes since 2008 which are managed us and advertised on booking.com etc.

To remain under the VAT threshold, 2 of them are in joint names, 2 of them are in my wife's name and 1 of them was recently transferred out of joint ownership to my sole name as otherwise we would have exceeded the VAT threshold.

All running costs for each property are debited for each specific account as are payments into the accounts.

In this way we can keep it VAT free.

My question is - are we likely to caught out and potentially penalised perhaps not just with a fine, but also with back tax?

If so, is there any way to avoid this happening?

Should we for example have separate personal accounts rather than the single joint account we've had for 40 years?

darthblingbling
Posts:697
Joined:Wed Aug 02, 2017 9:09 pm

Re: Avoiding VAT registration for 5 holiday homes (FHL)

Postby darthblingbling » Tue Jul 04, 2023 7:31 pm

I'm no VAT expert but I'd imagine there's some anti avoidance measure somewhere that says the threshold can't be artificially separated like this. If I had my HMRC hat on I'd be going after the 5 properties as one single business venture.

Trevor S
Posts:108
Joined:Tue Jan 01, 2019 12:37 am

Re: Avoiding VAT registration for 5 holiday homes (FHL)

Postby Trevor S » Wed Jul 05, 2023 11:37 pm

There is a whole HMRC internal manual (written for use by their own officers) dealing with identifying whether apparently separate entities are in fact really a single business, or have been separated artificially. See: https://www.gov.uk/hmrc-internal-manuals/vat-single-entity-and-disaggregation-manual

Unsurprisingly, some of the detailed content is redacted from the version published online! But it shows that HMRC do look into this and, when found, they can backdate VAT registration (to collect VAT avoided over up to 20 years - https://www.gov.uk/hmrc-internal-manuals/vat-registration-manual/vatreg26400) and add penalties.

darthblingbling
Posts:697
Joined:Wed Aug 02, 2017 9:09 pm

Re: Avoiding VAT registration for 5 holiday homes (FHL)

Postby darthblingbling » Thu Jul 06, 2023 8:19 am

Judging by your previous posts I can see you have an accountant and have considered the threshold before. If your accountant has advised the structure you're currently using I wouldn't be happy. If they've not I'd be having conversations about getting this sorted historically as the unpaid VAT and penalties could be significant if and when HMRC come knocking. Albeit I'm not a VAT expert and there could be facts supporting your structure that I'm not aware of for VAT purposes.

stephenco
Posts:6
Joined:Sun Feb 10, 2019 7:57 pm

Re: Avoiding VAT registration for 5 holiday homes (FHL)

Postby stephenco » Thu Jul 06, 2023 4:06 pm

A big thanks to darthblingbling and Trevor S for their thoughts!

I did speak to another accountant who recommended -

"A new limited company is incorporated with husband and wife owning 26% each. Their sons will own 24% each. Husband & wife to “sell” 3 properties to the new a limited company"

This would incur a load of other costs / complications including stamp duty & capital gains tax but would still be more economical than VAT registration.

I'm concerned about this whole strategy as I don't know whether it would also fall foul of the Disaggregation rules. Does anyone have any thoughts on this please?

Trevor S
Posts:108
Joined:Tue Jan 01, 2019 12:37 am

Re: Avoiding VAT registration for 5 holiday homes (FHL)

Postby Trevor S » Sat Jul 08, 2023 10:06 am

I certainly wouldn't be recommending it. Regardless of whether the structure technically "worked" (and that would require examination of the detail) - cases such as Halifax (https://www.vatupdate.com/2022/06/18/flashback-on-ecj-cases-c-255-02-halifax-and-others-abuse-of-law/) have held that where a complex structure has been adopted purely for the purpose of avoiding tax, HMRC can ignore it and consider what the tax position would otherwise be. Halifax is an extreme example and not specifically connected to registration, but there will have been many smaller cases where the general principles of abuse have been applied.

Bear in mind that the level of most HMRC penalties takes account of the taxpayer's actions. Essentially "owning up" to an error will normally result in a lower penalty than if it's found that you've tried to conceal it.

stephenco
Posts:6
Joined:Sun Feb 10, 2019 7:57 pm

Re: Avoiding VAT registration for 5 holiday homes (FHL)

Postby stephenco » Mon Jul 10, 2023 7:49 pm

Think I need to seriously consider my options and potentially exit the business.

Sadly after 15 years of investment and toil, it's becoming apparent that VAT could be the straw that broke the camels back.


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