Second Business

jondrock

Hello,
I currently run a business partnership, but I want to start another entirely different business as a sole trader.

What are the VAT implications and what is the best structure to protect my first business? The first business is just below the VAT threshold so not currently registered, but this may change because the company is creeping ever closer to the threshold.

I read on another thread that the tax allowance is on the owner and not the entity so VAT threshold will include both businesses? If that is true, can I claim expenses from both of the businesses as a whole too? Liberate Peter to Pay less to big ol' Paul.

I will have investors for the second business. They also own an existing business that is VAT registered and they are looking for the most efficient way too. Would it be easier to keep them out of ownership issues and receive company shares in return for investment.

Which company structure would suit us best?

martindow

As I understand it the key thing is that the new business is in a completely different field. If HMRC consider that the new business is an extension of the existing one it will be seen as an artificial separation to avoid VAT. That could trigger some unwelcome attention that would be best avoided.

If you run a building business and want to start up a new hairdressing salon that may be fine. If it's plastering you would be pushing your luck.

I think you need to speak to a suitably qualified and experienced accountant on how to set things up.

Allan53

Hi johnrock - have you considered setting up new business as Ltd Co, or moving your existing business to Ltd Co? As martindow has noted need to be careful of falling foul of tax rules, and as insufficient detail in your original post best talk with the experts.

paddyrg

Allan53 wrote: »

Hi johnrock - have you considered setting up new business as Ltd Co

With investors involved, this is by far the best and cleanest structure.

jondrock

Thank you for all of your replies!

The businesses are in completely different industries. I spoke to my accountant and she advised the simplest method would be to have a loan agreement with investors if they are happy with that arrangement. Appointing shares would be difficult because how can you value a business with no trading data.

To protect my first company she mentioned I could set up a LTD Company and become an employee but the Tax liability won't change and the bottom line of the combined businesses will be in affect.

Luckily my Investors are pretty laid back so I'll probably go with the lender arrangement with a basic repayment structure and link it into a profit percentage to limit my losses if the business doesn't fly, whilst also offering an incentive for them to keep backing the business.

My accountant was just about to go out when I door-stepped her so I only got a brief explanation, so please don't take any of this as proven fact. I will keep researching, thanks.