Sole trader to Ltd company

--Tony--

eggha wrote: »

aside from what others say above as to why your plan won't work, I'm not sure you understand how VAT works

There are only two ways to be able to claim VAT on the fuel used on business journeys:
a) the vehicle is owned by the company and the company pays all the costs. The vehicle is therefore a taxable benefit for you personally and so likely to cost you more personally than not having a "company" car. The increased personal tax could far outweigh the "value" of your company providing a car to you, its employee.

Eggha,
It is situation "a" as its a company vehicle, the difference is it's a van and not used for personal use (I have a personal car for my use), it's only for business use.
Am I not right to think I simply fuel it with the company credit card and then claim back 20% VAT on that fuel?

--Tony--

JasonLVC wrote: »

If the two trades are sharing a phone number that is confusing for the customer and also means we create an organisational (equipment), economic (shared customer) link and so we're getting close to all three links being met.

The two companies would not share a phone, in fact the Ltd company would not even advertise for work, it only exists for the benefit the the multinational which will only deal with a Lts company.

The Ltd company would not even take work if a customer phoned them, I would only have a virtual number set up so the the one and only client could phone me. Actually the multinational provides me with a phone so that company has its own dedicated number.

The multinational also provides tools so I am not using the same tools.

Is there not a bit of an argument that far from trying to avoid tax I am in fact being forced into this situation by a change in policy my the multinational.

My car could be used for the sole trading and van for Ltd company? I'm sure I can keep this separate. The sole trading part also does EPC's and when I do these I use the car to look more professional.

The insurance Is hard unless I have two policies which I don't really want.

JasonLVC

chrismac1 wrote: »

In fact I think you have a fair shout in justifying a separate economic reason for the separation and hence the VAT treratment you desire.

Unless I have misunderstood the post, we will have a separate legal entity here with separate year-end accounts, bank accounts, trading styles and customers. Possibly also different suppliers. That scores about 80% on my "VAT separation" scorecard which is based on the very many tax cases in this area since VAT went up to 20%.

As Pennywise says, you are losing a few marks on the scorecard because of the aspects of the 2 businesses which will be in common.

Across my client base of 145 clients, I reckon roughly £500k to £1m in VAT has been legally saved over the past 5 years by setting up exactly the sort of setup you are suggesting in your post here. Total VAT enquiries zero.

Presumably you set your clients up properly, so that the three legal tests cannot be achieved by HMRC (the 80% scorecard you refer to). In theory, if one of the three tests are not met then its no go for HMRC.

The three tests has been heavily tested in tribunal, HMRC will rely on it every time and HMRC will try their hardest to attack, they will look for the smallest bit of veneer to pick away at.

Since the evolution of HMRC's "connect" computer system, I can tell you they now analyse data from across 30+ different databases (DVLA, phone records, etc). If you have a sole trader and Director, the sole trader will be putting in a personal tax return, the Director may also do so. HMRC were not very good at matching the two up, but they are very good now, so if they see a sole trader paying himself say £20k on a £80k turnover (under VAT threshold), but also same guy pops up as Director in a Ltd paying himself another £30k on turnover of £150k, the two trades have the same address, DVLA records show who owns the van and they've got you if it doesn't stack up. I've seen the system first hand, I've seen how it works and its both impressive (as a computer geek) and scary (as a tax nerd).

lovinituk

What address would the entities be registered at - the same? Would you use the same tools for both?

I read about a case where HMRC took someone to court for artificial separation and won on the basis that both entities shared the same premises and the same equipment. I'll see if I can find it.

JasonLVC

--Tony-- wrote: »

The two companies would not share a phone, in fact the Ltd company would not even advertise for work, it only exists for the benefit the the multinational which will only deal with a Lts company.

The Ltd company would not even take work if a customer phoned them, I would only have a virtual number set up so the the one and only client could phone me. Actually the multinational provides me with a phone so that company has its own dedicated number.

The multinational also provides tools so I am not using the same tools.

Is there not a bit of an argument that far from trying to avoid tax I am in fact being forced into this situation by a change in policy my the multinational.

My car could be used for the sole trading and van for Ltd company? I'm sure I can keep this separate. The sole trading part also does EPC's and when I do these I use the car to look more professional.

The insurance Is hard unless I have two policies which I don't really want.

You're getting the idea, and sounds like most things are sorted (not your own tools, separate number to call, etc).

Just need to think how to separate the two businesses as far away from each other as possible. HMRC do not care about multinational changing its operations, the law is the law.

If you only have one insurance policy, does that not mean you are not technically insured for one of your hats? If the Ltd is insured (to keep the multinational happy), is it in name of company or personal name? Forget about VAT, just be careful you have proper insurance cover, you could end up being sued and then find out you are not insured beuase the job was a sole trader one but your insurance is for the Ltd or vice versa.

Same with the van, check the insurance - who is insured you as company or you as sole trader? If sole trader pays for it but ltd also uses the van you create a financial dependence/link.

Again, its just about taking the time to be careful with the detail, as a gas engineer you appreciate the importance of getting the details right! and so it is here with VAT. You can never really create a perfect separation but just make sure the further the links between the two trades are the harder it is for HMRC. The risk sounds relatively low from what you've posted (or to quote Chrismasc1, you sound like you're in the 80% zone)

Its a very subjective thing, but HMRC will be very objective about it, its not illegal to split, just split it right.

lovinituk

I can't find the ruling I mentioned above but this is relevant to you...

http://www.taxpartnersuk.com/blog/vat-artificial-separation-of-business/

HMRC’s view on what constitutes disaggregation of businesses to avoid VAT is contained in VAT notice 700/1. Generally, HMRC would look at striking at least one link each under financial, organizational and economic heads before proceeding to issue a direction. That said HMRC, as a general rule, would view the following to be a single taxable entity:

Two businesses owned by same persons where one VAT-registered entity sells only to VAT-registered customers, and the other entity, not registered for VAT, sells only to customers not registered for VAT.

The premises and/or equipment are shared; something common with businesses such as launderettes and takeaway food supplies
Splitting up a single supply for e.g. bed and breakfast business where one supplies the bed and another the breakfast.

A number of businesses owned by the same person making the same type of supplies.

My highlighting, but looks like you are possibly caught out by all of those.

If you want to know for sure, approach HMRC and ask for their direction.

lovinituk

--Tony-- wrote: »

My turn over last year was not even half that requiring me to register for VAT so once split neither company would make much.

Hang on, have I missed something? If your turnover is at that level why are you even considering VAT?

Why not just forget about VAT, form the limited company and run both sides of the business through it?

(sorry if I've missed something obvious)

JasonLVC

lovinituk wrote: »

Hang on, have I missed something? If your turnover is at that level why are you even considering VAT?

Why not just forget about VAT, form the limited company and run both sides of the business through it?

(sorry if I've missed something obvious)

Depends what is meant by turnover - of the sole trader, the limited or both.

If both under the threshold then yes, don't worry about VAT. But I think the intention is to have the Ltd registered for VAT so that you can reclaim VAT on everything (fuel, etc) but then have the sole trader for the consumer jobs and not charge VAT.

If the van is only used for Ltd jobs (multinational) and never used for consumer jobs then the fuel in the van is in theory all business use and VAT recoverable, but any fuel that goes into the car cannot be reclaimed by Ltd because the car is not owned by the Ltd nor the car used for Ltd jobs and so VAT cannot be reclaimed. Its why you've got to be super-ace at keeping records separate.

There is usually a VATadjustment required for fuel, even for the van, as although the van is used entirely for business use, the journey to/from home is not a business journey nor is nipping to McDonalds at lunchtime to grab a snack, so HMRC generally expect a small adjustment of input tax on van fuel (5%-10% clawback), to reclaim 100% VAT on fuel means the van is only ever driven to/from business jobs, never goes home and never goes to Asda, its possible but in reality its a tough argument because the driver has to eat and go home at some point in the day.

--Tony--

JasonLVC wrote: »

Depends what is meant by turnover - of the sole trader, the limited or both.

If both under the threshold then yes, don't worry about VAT. But I think the intention is to have the Ltd registered for VAT so that you can reclaim VAT on everything (fuel, etc) but then have the sole trader for the consumer jobs and not charge VAT.

If the van is only used for Ltd jobs (multinational) and never used for consumer jobs then the fuel in the van is in theory all business use and VAT recoverable, but any fuel that goes into the car cannot be reclaimed by Ltd because the car is not owned by the Ltd nor the car used for Ltd jobs and so VAT cannot be reclaimed. Its why you've got to be super-ace at keeping records separate.

There is usually a VATadjustment required for fuel, even for the van, as although the van is used entirely for business use, the journey to/from home is not a business journey nor is nipping to McDonalds at lunchtime to grab a snack, so HMRC generally expect a small adjustment of input tax on van fuel (5%-10% clawback), to reclaim 100% VAT on fuel means the van is only ever driven to/from business jobs, never goes home and never goes to Asda, its possible but in reality its a tough argument because the driver has to eat and go home at some point in the day.

That is exactly right, although turnover is low my fuel spend is huge and to be able to claim 20% of my fuel back makes it worth while in my eyes, the accounting for the Ltd company will be dead simple.
Because I don't have a workplace my first job is always driving to my first customer but I do drive home at the end of the working day. I guess as I don't have a workplace and we collect materials and parts from the Royal Mail sorting office I could conveniently restock each night as the sorting office is 1 mile from my house.

--Tony--

JasonLVC wrote: »

If you only have one insurance policy, does that not mean you are not technically insured for one of your hats? If the Ltd is insured (to keep the multinational happy), is it in name of company or personal name? Forget about VAT, just be careful you have proper insurance cover, you could end up being sued and then find out you are not insured beuase the job was a sole trader one but your insurance is for the Ltd or vice versa.

At the moment the insurance says "me trading as xx gas" when I called my broker they said they could amend the policy so I would be covered for both companies, I'm not sure but guessed the mean "me trading as xx gas & yy gas Ltd".

From what you guys are saying this is bad as it's one policy for both companies, I'm not sure what the answer is because I don't really want to pay for two policy's.