Splitting Costs?

TheScarletPixie

Hi Everyone,

I'm after a bit of info on how to split costs between 2 businesses. My partner and I are both setting up new businesses (1 each) we will both be sole traders. He has a lock up that he rents and I am looking at purchasing a van. We will both be using the lock up and van for our respective businesses, so what is the best way to split the costs involved?

I was thinking that he bills me for half the lock up rent each month which I would pay via bank transfer, would this be the best way?

The van I'm not so sure about as it would have one owner i.e. me and the insurance etc... would be a flat cost as I will be using simplified expenses for HMRC. Should I charge him a fee and bill him or would he be better claiming a flat rate for mileage the same as me, he will be contributing to the initial cost of the van and insurance etc... the van will be purchased second hand, we only have a budget of about £2,000 for it to start with and don't want to get into debt to get one.

I hope I've explained things clearly and look forward to hearing any suggestions.

Pennywise

Yes, you should raise invoices between each other for the services used - you need to aim for each business ending up paying the right proportion of their usage.

With mileage, if one of you owns the vehicle, then you charge the 45/25p per mile and ignore real costs. If one of your businesses owns it, you can claim actual motoring costs and then have a choice of either invoicing the other on the 45/25p per mile basis or as a proportion of total costs according to the mileage driven by the other business.

Just be very careful, though, when one of your businesses becomes VAT registered - that's when the taxman will take a lot more interest to make sure that you're not abusing the VAT rules, i.e. by renting the unit through the VAT registered business to claim back all VAT. If neither business is VAT registered, you have a lot more freedom to allocate costs virtually without challenge as long as you've got some kind of rationale for your splits.

TheScarletPixie

Thank you Pennywise, I thought we might be able to do it by invoicing each other but wanted clarification. If one or both of us becomes VAT registered we will most certainly have an accountant to deal with the books, but as we're just starting out the invoicing idea will be fine. Thank you again for taking the time to reply :-)

londonTiger

you can just use the one invoice and just claim the percentage used.
E.g. £100 rent, post £50 on the books and pay that much. (post that into the books of each business)

Makes bookkeeping a lot easier.