Company offering work through ‘non-VAT registered sister company’

7sefton

Hello

I’m getting some gardening work done and asked a local company I’ve used before for a quote. I was very happy with their previous work and they seem very professional.

The quote was higher than I could afford so I declined. I then got this message…. am I being completely naive or this company basically saying I can avoid VAT. Is this legal? Why would I willingly go through their VAT-registered business when this seems to be a legitimate option?

Very confused about what’s going on and would appreciate your insight:

“Our non-registered VAT business ABC Ltd is part of the same group. You would receive the same service but without the need to pay VAT. Therefore, the cost would be £xxx…”

Jeremy535897

I am assuming that you can't recover the VAT charged?
There is nothing illegal in people forming a company which is VAT registered, to supply gardening services to registered customers, and another that is not VAT registered (it has to have turnover under the VAT registration limit).
However, if they are too interconnected, HMRC may direct that they be treated as one business.
It is not your duty to investigate this, although some people might view it as morally questionable.

Bookworm105

as above, dealing with a non VAT registered limited company simply means you should be paying less than were they forced to charge Vat. Your choice.

Their problem, not yours, if they are fiddling their tax by being, as said above, "too" connected.

7sefton

Sorry I’m still not getting it… of course I don’t want to pay VAT if I don’t have to, so why would I ever choose not to deal with the VAT non-registered option?

Bookworm105

7sefton said:

Sorry I’m still not getting it… of course I don’t want to pay VAT if I don’t have to, so why would I ever choose not to deal with the VAT non-registered option?

what do you not get?

it appears "they" have a second company who they admit to existing when the potential customer is as price sensitive as you are and they would lose the business if pitched by their other Vat registered company.

Presumably only a "select" number of customers are given that offer, so as to ensure the company remains below the Vat threshold.

7sefton

Bookworm105 said:

7sefton said:

Sorry I’m still not getting it… of course I don’t want to pay VAT if I don’t have to, so why would I ever choose not to deal with the VAT non-registered option?

what do you not get?

it appears "they" have a second company who they admit to existing when the potential customer is as price sensitive as you are and they would lose the business if pitched by their other Vat registered company.

Presumably only a "select" number of customers are given that offer, so as to ensure the company remains below the Vat threshold.

Thanks this is helpful. But what I still don’t get is why don’t they offer this to everyone. Surely they could just create lots of different non-registered companies to remain under the limits?

if there’s nothing illegal about it, I’ll take them up on their offer

[Deleted User]

If they were to offer it to everyone, the would soon breach the £90,000 vat threshold.

It's a dilemma for small firms. Once they breach the threshold and need to register for vat, they have increased their prices by 20% overnight.
Not a problem if dealing with businesses (who will be vat reg), but can make them uncompetitive if quoting against a non-registered firm. That's why your company (rightly or wrongly) has taken this approach.

At least they didn't suggest paying cash to make it cheaper, that would be blatant tax evasion.

As it stands, they appear to have offered work through a business, that business should be paying the appropriate taxes.
You also have a company that you can hopefully verify, which is far better than a cash deal, where you have absolutely no comeback.

Jeremy535897

7sefton said:

Bookworm105 said:

7sefton said:

Sorry I’m still not getting it… of course I don’t want to pay VAT if I don’t have to, so why would I ever choose not to deal with the VAT non-registered option?

what do you not get?

it appears "they" have a second company who they admit to existing when the potential customer is as price sensitive as you are and they would lose the business if pitched by their other Vat registered company.

Presumably only a "select" number of customers are given that offer, so as to ensure the company remains below the Vat threshold.

Thanks this is helpful. But what I still don’t get is why don’t they offer this to everyone. Surely they could just create lots of different non-registered companies to remain under the limits?

if there’s nothing illegal about it, I’ll take them up on their offer

HMRC have powers to treat multiple businesses as one if they are too intertwined. While it is possible to keep a couple of companies separate, as they proliferate, it is harder to do so.

[Deleted User]

7sefton said:

Bookworm105 said:

7sefton said:

Sorry I’m still not getting it… of course I don’t want to pay VAT if I don’t have to, so why would I ever choose not to deal with the VAT non-registered option?

what do you not get?

it appears "they" have a second company who they admit to existing when the potential customer is as price sensitive as you are and they would lose the business if pitched by their other Vat registered company.

Presumably only a "select" number of customers are given that offer, so as to ensure the company remains below the Vat threshold.

Thanks this is helpful. But what I still don’t get is why don’t they offer this to everyone. Surely they could just create lots of different non-registered companies to remain under the limits?

if there’s nothing illegal about it, I’ll take them up on their offer

Definitely not from your point of view - HMRC won’t be coming after you for any VAT which may subsequently be found to be payable. It’s the company’s decision and their problem!

Bookworm105

7sefton said:

Bookworm105 said:

7sefton said:

Sorry I’m still not getting it… of course I don’t want to pay VAT if I don’t have to, so why would I ever choose not to deal with the VAT non-registered option?

what do you not get?

it appears "they" have a second company who they admit to existing when the potential customer is as price sensitive as you are and they would lose the business if pitched by their other Vat registered company.

Presumably only a "select" number of customers are given that offer, so as to ensure the company remains below the Vat threshold.

Thanks this is helpful. But what I still don’t get is why don’t they offer this to everyone. Surely they could just create lots of different non-registered companies to remain under the limits?

if there’s nothing illegal about it, I’ll take them up on their offer

Fred Bloggs (Roofing) Ltd - Vat registered. Owned by Fred Bloggs
Fred Bloggs & Son (Roofing) Ltd - not Vat registered - owned by son 

independent companies, each able to cross sell/promote

Fred Bloggs (Roofing) Ltd - Vat registered. Owned by Fred Bloggs
Fred Bloggs & Son (Roofing) Ltd - not Vat registered. Owned by Fred Bloggs 
HMRC would regard that as a "group structure" and enforce grouped Vat status on each given they operate in the same business sector under the same "control" (in overly simple terms: ownership)
VGROUPS01000 - General principles of VAT group treatment: contents - HMRC internal manual - GOV.UK

‘Control’ for this purpose has a special meaning based on the definition of holding company and subsidiary in section 1159 of and Schedule 6 to the Companies Act 2006. This definition of VAT group eligibility has been in force since 1999.

Grumpy_chap

[Deleted User] said:

It's a dilemma for small firms. Once they breach the threshold and need to register for vat, they have increased their prices by 20% overnight.

Not necessarily.
If the work is all - or nearly all - labour, which routine gardening work might well be, then the prices increase by 20%.
If the work has a larger component of materials - which a landscaping and paving project might have - then the price increase should be less than 20% because the input VAT can be reclaimed on materials.