Vat

[gibby1]

Hi can anyone help me?

i am setting up a partnership in a computer repair business, and we will also be selling custom built computers. When we did our cash flow the sales where getting near the vat limit £56k, now if we go over that we will have to pay lots of VAT.

My question is can I split the business in to 2 different bussiness one for services and repairs and another for my custom built computers, thus giving each business a £56k limit which would be plenty.?

If we did do this would the VAT man ask why the second company dosnt have any costs like andertising at rent etc?


Cheers

Chris

[James Smith]

Chris,

Unfortunately you can’t split your business in this way. The only way to do something like this would be for you and your partner to have two different businesses, one doing the repairs and one the services. However if you work closely together (as you presumably intend) it will look like one business, and be caught by the anti avoidance legislation.

Although being VAT reg can be a pain if most of your customers are individuals, it may not make much difference to the PC's building.

This is because if you are not VAT reg, the VAT on the components becomes a real cost to you, which you will need to pass on as a higher retail price. As you will presumably only charging a small labour margin for the build, the net effect will only be the VAT on the labour for the build.

eg buy components for £300+VAT = £352.50
Labour margin = £40

Non vat sales price = £392.50 (£352.50+£40)
VAT sales price = £340 (£300+£40) + VAT = £399.50.

If you where selling to a business, the latter price of £340+VAT is actually more attractive than not being VAT reg!

If you look like you are going to go over the limit it is worth looking now as to whether it is worth reg early ie at the start of the business, or when required to by hitting the threshold.

In a start up you tend to have a large number of costs - and early reg can actually work out for the better as you can then reclaim your VAT on the start up costs.

If you need some more help on this please let me know. In addition you really should consider if a limited company structure would be more suitable than a partnership. There are potentially some serious (income) tax savings to be had with the correct structure.

Regards