Looking for a little bit of help re: wholesaling/direct selling etc

klim · 9 February 2010 at 6:33PM

I'm looking for a little bit of assistance regarding my current business plans if anyone would be so kind.... It's a little bit multi pronged!!

I currently run a partnership selling ladies accessories - bags, scarves and jewellery etc. The business is a 60/40 split between wholesaling and direct selling.

We've been going for about 3 years and are now looking to go VAT registered - we're not quite there yet but from a wholesaling point of view this is going to look better from the view of the customers we're trying to get. However, I'm also looking to segregate the wholesaling side from the direct sale side (at fayres and various things) because I don't want the potential problems of selling direct for a different price than my wholesale customers are charging.... Also, using the same business name I have difficulties sending direct sale customers to a wholesale website and vice versa.

My intended solution to this is to start up a new partnership in a completely new business name. Now giving me the following:

- Business A is the wholesaler. It buys all the stock and is a VAT registered business.
- Business B is the direct seller. It is not VAT registered and buys it's stock from Business A at obviously very low prices.

This seems to solve all my problems, but gives the benefit of saving me on VAT - because I'm adding it on to my wholesale sales (Business A), but not having to either increase my direct prices, or pay 17.5% of my retail monies to HMRC (Business

.

This seems too good to be true - is it legal? Would I get in trouble for doing it that way? Any help would be hugely appreciated!

Colin2511 · 9 February 2010 at 8:57PM

I *think* (but please check with your accountant) that the vat man will take a dim view on this, and see it as vat avoidance, as the businesses are selling the same items, same business premises etc, same directors, and will therefore view it as one business for vat purposes (ie all your turnover). You could still have 2 separate trading names, which avoids the confusion issues, but with the " is a trading name of XX company" or whatever the correct wording is. - I know a few years ago when we considered splitting the business (different countries so it meant one would stay under) the accountant spat his tea out and told me no.

Also what would your wholseale customers think if they twigged that you were doing this?, as some could get antsy that you were then going in direct competition with them? (or maybe as you are already 40% direct retail you have this bit sorted)

Rolo_Tomasi · 9 February 2010 at 9:03PM

First of all it is the legal entity that is registered for VAT and this covers all business activities. Therefore you cannot just set up a new business name which has the same partners as the original business and have one name registered and the other not.

It is possible to set up another legal entity ie a sole trader or Ltd company and this would be treated separately for VAT however if the VAT office believe that the only reason for separating a business is to avoid charging VAT on certain sales then they can direct that the non registered business has to be registered.

klim · 9 February 2010 at 10:39PM

OK, thanks very much for that people. It did all seem a little bit too easy - I will get on the blower to someone tomorrow to find out the best way of going VAT registered for all, but just having a split of sorts between the direct, and the wholesale side.
:T

Looking for a little bit of help re: wholesaling/direct selling etc

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