SPLITTING YOUR BUSINESS UP TO AVOID VAT - DOES IT WORK? (UK)

Worried about VAT and heard you can split your business up to avoid VAT registration? In this video Dan runs you through the key points on this topic.
Topics include:
Avoiding VAT
Can you avoid VAT
Artificial separation
Splitting your businesses for VAT purposes
How to handle VAT registration
… and more!
If you have any questions on this, please comment below.
You can see more about what we get up to on the following:
LinkedIn (Dan): / danheelan
Instagram (Dan): / danheelan
Podcast: heelanhub.co.uk The HeelanHub Podcast, a show for small business owners.
Join our mailing list for tax tips at: www.heelanassociates.co.uk
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Twitter (Company): / heelanassocs
Web: www.heelanassociates.co.uk
Call: 02392 240040 Email: [e-mail]
#accounting #selfemployed #vat #business

[@steddyeddyuk]

Brilliant - you "spend all day long helping businesses on their journey". FANTASTIC! I need to get from Liverpool to Helsinki . . . . . . .

[@HeelanAssociates]

We do have several travel agents as clients if you needed and intro 😀

[@cruthaighprints9827]

Absolutely excellent video. Much appreciated!

[@HeelanAssociates]

Glad you found it useful :- )

[@baytech4787]

Dan - your videos are spot on!

[@HeelanAssociates]

Glad you enjoy!

[@baldeepbirak]

Good explanation. We kept @BirakIT as one business. Explained to customers of the VAT change and those that listened got some work in Nov/Dec 2021 without the increased costs. We didn't lose customers either.

[@HeelanAssociates]

Generally that’s right in my experience Birak, managed well it’s not a problem!

[@andrewross3293]

Wonderful presentation. Thank you.

[@HeelanAssociates]

Glad you enjoyed it!

[@chentemccarthy7014]

Great videos. 👍

[@HeelanAssociates]

Glad you enjoy!

[@oldskoolmk2]

Love the videos, Dan. We are having an absolute nightmare registering for VAT. Our application went in in December and we've had nothing but trouble ever since. Not HMRC close the phone lines! Have you experienced this recently? - James.

[@HeelanAssociates]

Oh for sure they are a nightmare right now with these and are shutting phone lines . . December does sound a little long though even with the standard long time, maybe worth writing if you can’t get through . . . Or oddly if you are on Twitter asking hmrc customer support for best method to contact

[@alyxparker2131]

Hi, thank you for the videos, I find then really valuable! Could you explain whether franchising would be a way to split a business legally (eg a driving school, made up of individuals but sharing a website, advertising etc)? Thanks so much

[@HeelanAssociates]

It’s actually same principles regardless of the franchise, so if you did this you’d just need to bear in mind www.heelanassociates.co.uk/splitting-business-avoid-registering-for-vat/

[@mgdoble]

I found the whole argument about putting your prices up a bit optimistic. If you can charge £120 for the haircut, why aren't you doing so already? Say you are not selling a luxury service, but something more every day like ice creams. If a cone costs £3 pound you aren't going to get away with putting it up £3.60. Whereas the haircut comes with customer loyalty and a wealthy clientele. Ultimately if the price is inelastic (to use an economic term), and its a competitive market, you can't put it up and expect to keep any of your customers. Therefore in this case VAT is a tax on the seller. At 85k you're suddenly losing 17k in revenue. Possibly the only way to live with this is to make your business much more successfull. If you're turning over 150k perhaps its less painful to lose 30k in VAT because you're making a decent profit.

[@HeelanAssociates]

It’s a massive struggle for some businesses, particularly selling to public for the reasons you state. As a general though, whilst you might not be able to suddenly charge on +20% ( not many public selling can)every business we’ve ever worked with has been able to increase price in some way. Half the issue oddly is the high reg threshold that creates a cliff edge at 85k

[@helpvid]

Hi Dan, we have a web design company are are just about to hit the thread hold. Our business is split into different services. Basically a team of 2 doing web design and another team of 2 doing digital marketing, in this senario do you think we would separate. Also we all work from home due to pandemic so we don’t share a premises. Also the threashhold of £85,000 is this after or before or after salary is paid? Hope to hear your feedback, great video, great channel with valuable information, subscribed and 👍 liked

[@HeelanAssociates]

Hey, glad you enjoyed the videos. We couldn't give you an exact answer here as it would need a lot of detail on your circumstances, and professional regulation prevents us without being engaged by you, but, have a read here: www.heelanassociates.co.uk/splitting-business-avoid-registering-for-vat/ So much comes down to how the business operate, i.e different websites, financially independent etc. Ask yourself, are you 'really' two separate business? If this answer doesn't feel a solid Yes, it's unlikely we'd suggest it. £85k is the total taxable supplies in invoice values/turnover, so no deductions for things like wages.

[@WaiKoH]

Hi Dan! I hope you see this message. Does banks require the bank account be in the company's legal business name?

[@HeelanAssociates]

Do you mean for a limited company? If so, ideally yes you'd want a business account in the company's name so it legally 'owns' the money. We've seen the odd occasion a client just can't get one and there are work arounds.

[@stex83]

great video thanks. What if I go over the threshold in 2020/2021 but I know I will go down in 2021/22? am I forced to register regardless?

[@HeelanAssociates]

You can apply for an exception to registration. What I would say with this, is really be sure this is going to happen. We've seen often people say this, and that doesn't happen - they carry on being successful! But if that is you, you can apply: www.gov.uk/government/organisations/hm-revenue-customs/contact/vat-registration-applications-exceptions-and-changes

[@shamir.globalimpact]

VAT totally screws over those selling digital goods online. There's hardly anything on claim back

[@HeelanAssociates]

For sure digital goods are one of the most challenging areas for vat.

[@doug2279]

what about multiple holiday lets in different towns one each business? or multiple Hotels in different towns? Whats the rules on that?

[@HeelanAssociates]

This would need discussion on the particular circumstances, as it depends on the structure the hotels/lets.

[@FaizanNasir]

Dan could you create Excel videos on main accounting concepts? As a guide

[@HeelanAssociates]

Sure, we have a few on the channel a;ready - any particular you would like to see?

[@FaizanNasir]

@@HeelanAssociates great. What about things like Income Statements and balance sheets. Maybe you can create a template for them too?

[@ajduke]

So would this setup be OK?... Buying 2 eCommerce websites from 2 sole traders selling different products, then structuring them as 2 limited companies with separate bank accounts. Companies would have the same director/shareholder. One or both companies being below the VAT threshold.

[@HeelanAssociates]

I think it would depend on the ‘substance’ of the set up. Too difficult to say in comment here I’m afraid.

[@Abyssosdarkos]

Great video. I am still unsure about the treshold? Lets say if i open my business in May 2021 and turn over 60000 by May 2022. Does the threshold restart again for another 12 months? Or does it keep accumulating till I hit the 85000 mark outside of 12months?

[@HeelanAssociates]

It's a 'rolling' 12 months. So if you think say May - June, when you reach May 2022, you drop off the old may (2021) and add the new one (2022). When you reach June 2022, you drop off June 2021 and add the new one. It moves with you. At any point that 12 month figure is over £85k you've reached the threshold.

[@Abyssosdarkos]

@@HeelanAssociates right got it. Thanks so much for the clear response. Much appreciated, your videos are great.

[@darseyno1520]

I would like to ask a similar question as on of the persons below. If for example i had made 100k and then 20k for the v.a.t. Do i pay my income tax on the 100k or is it on the 120k. Don't worry about the expenses or the tax code

[@HeelanAssociates]

£100k you ignore the vat you effectively handed over to HmRc when working out profits.

[@dantheman81811]

What about for one person who has two ebay/amazon businesses offerimg completely different products, both under 85k. Is that possible? Can I have the two set up as ltd companies and not pay VAT on either? Thanks 😊

[@HeelanAssociates]

Its very dependant on the exact facts, but isn't impossible.

[@dantheman81811]

@@HeelanAssociates thanks for the reply. I'm setting up a new biz as first container arriving in April next year. I live in Bristol. Would you be interested in my business and if so shall I call your office?

[@Raquel.V.]

Hi, thank you for making these videos I have been subscribing to your channel and I’ve found them to be very helpful! Could you please make a video to explain… 1) How it would work if you have a sole trading business registered in the uk but want to work in the EU. 2) Would it be advisable to change the company into a limited company for these purposes. 3) Would I be impacted if my company name and trademark is registered in the uk but I then move to the EU and continue business there? I really hope you can help! Thank you for all your help!

[@HeelanAssociates]

Glad you enjoy the videos! I think with these questions there is a lot more we'd need to understand to give you you even a generic answer, because certain situations change the outcome. Example UK sole trader doing a bit of service style work remotely for an EU business client is unlikely to be an issue, but depending on the type of work, who you are working for, length of time there etc there could be consequences / different outcome. There is also VAT to consider (here and there). Being Limited or Sole Trader has similar issues with this, depending on the exact circumstance. We dont advise on trademarks so sadly couldn't help on that one either.

[@TheNeilsolaris]

Can I ask your opinion on this hypothetical example please? Let's say a VAT registered orchestra hires out its services, and pays for all the suppliers (freelance musicians, concert hall, rehearsal venue etc), then charges the client with a mark up plus VAT. But then the client, who isn't VAT registered, suggests that they pay all the suppliers themselves (most of the suppliers are not VAT registered lets say), then pays the orchestra their commission plus VAT. The supplier is happy because they end up paying less over all, and the orchestra is no worse off. Is this arrangement in danger of falling foul to VAT dissagregation? Thanks!

[@InsomniaTalks]

Great advice! You're a natural on camera not one single edit in the whole shot that I can tell, but always on point! Just a quick question, I help people who have insomnia with CBTi. I make my income through a combination of published books (a small proportion) group coaching, 1 -1's and also a little bit through corporate workshops. However, the bulk is through direct work with clients who don't pay VAT. I know certain health services are VAT exempt but mental health services IE therapy are not. Do you know where my business would sit? I'm currently under the threshold but I anticipate the possibility of going over will be a nice problem to have at some point. Thanks again for a great video.

[@HeelanAssociates]

It’s a hard one to answer in a comment, VAT often is! It maybe you have different liabilities based on the various services, and depending how and where you deliver them could have different result for VAT. Sorry that’s not more helpful, but it’s probably one that’s best for a chat with a professional 1-2-2 to dig into the circumstances some more. Ty for kind words re the presentation!

[@kestoes]

I am currently a sole trader with a B and M shop. I am looking at starting an online business with my daughter, again as a sole trader, but as a partnership. will this be ok? Obviously opening a new business bank acc for it.

[@HeelanAssociates]

If you mean from a tax point of view, yes. You just add all the info to different pages in your tax return.

[@relaxnchill1111]

Hi Dan, I run a small hand-made candles business. I am planning to cooperate with a local, phycial Boutique shop, placing my products in their shop. Every item sold, a percentage of the profit will be split to the shop. Under this situation, is it legal? If not, does this affect my VAT/ the local shop's VAT? I heard horrible stories that since the customers are visiting the shop, that means I need to pay the VAT, as the shop business will be counted on me?!

[@HeelanAssociates]

Sadly can’t answer that here, I have too many questions on the scenario. It mostly is going to come down to who is making ‘the supply’ to the customer.

[@drbrungus]

Could you please talk more about pricing like your example at 7:30?

[@HeelanAssociates]

What would you like to know?

[@drbrungus]

@@HeelanAssociates You mentioned if you increase your price by 10-20% you may only lose about 10% of your customers and you might find you make more money. It would be great to hear more pricing insights like this if you have any! Perhaps you could do a video on this

[@mgdoble]

@@drbrungus I found this a bit optimistic. Say you are not selling a luxury service, but say ice creams. If a cone sots £3 pound you aren't going to get away with putting it up £3.60. Ulitimately if the price is inelastic (to use an economic term), you can't put it up. Therefore in this case VAT is a tax on the seller. At 85k you're siuddenly losing 17k in revenue. The only way to live with this is to make your business much more successfull. If you're turning over 150k perhaps its less painful becaseu you're mkaing a decent profit.

[@MrJasonsanderson]

Hey Dan, I just accidentally went over the threshold for this tax year and need to register with VAT now. My problem is all my clients are in the US so i'm guessing they aren't to be charged UK VAT, and I'm living in Europe too to also add complications to it, as i can't claim back my VAT purchases anymore. My business is in the UK but i'm not really selling anything to the UK market. I provide content production for podcasts as a service. Any idea how this will work out? Not finding much info about this kind of thing.

[@HeelanAssociates]

It might be your us customers are actually outside the scope of Vat and therefore those sales don’t count towards the limit. It’s worth checking this one with a professional for some exact advice on your circumstances. Probably too detailed to cover here I’m afraid.

[@MrJasonsanderson]

@@HeelanAssociates this does confirm what others are saying too. Thanks.

[@emrekoca9986]

🙏🙏

[@HeelanAssociates]

Glad you enjoyed ;- )