UK VAT implications for our new venture.


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Hi,
I am an owner of a cleaning business mainly offering carpet,upholstery and one off cleans.
The business has been running for about 2 years.
My friend also has a cleaning business mainly offering domestic,end of tenancy and office cleaning.He has been going for about 5 years.
My turnover is about 40k pa, his is about 60k pa.
The thing is, he likes the idea of setting up another separate company together.It would still have something to do with cleaning (maybe waste) as we both have skills in other types of cleaning and have many contacts.
We would register the company at either his or my address or even think about getting a unit.I know if it was one person trying to separate two cleaning company's, even at different address, they would not get away with avoiding Vat if the joint turnover goes over the threshold, but does this apply to us as a partnership with an already combined turnover which is over the VAT threshold.Registering for Vat would be too early for me at the moment, although i hope to keep growing and adding more commercial customers over next few years to become VAT registered

If there are implications for Vat by starting a new cleaning company, could we start a new maintenance company at a different address.We both sub out a few thousand worth of gardening and decorating work a month.This would be a great base to start a maintenance company if we where to do the work ourselves.
I hope this makes sense.
Regards David.
 
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Hi David

If you are in business (includes Individual, Partnership, Company, Association etc) and you supply goods and/or services within the UK over £73k over the past 12 months then you must register for VAT.

Here's the link:
HM Revenue & Customs: When to register for UK VAT

Please also see the comments on this page regarding avoiding VAT registration by artificially seperating business activity.

In saying that, you may have a legitimate reason for setting up a seperate company which performs different activities. In fact HMRC requires you to advise them of the industry your business operates in and if that business is vastly different you may wish to seperate them anyway. There are some examples at the end of the referenced webpage to indicate what is allowable from an HMRC's perspective.

If you do decide to go ahead with this combined business you could register for flat-rate VAT which means you charge your customers 20% VAT but you pay a smaller % to HMRC (you don't get to claim any expenses). This can sometimes work in your favour.

Here's the link for information on the VAT flat-rate scheme if you're interested:

HM Revenue & Customs: Flat Rate Scheme for VAT


Finally, because cleaning services are usually offered to non-VAT registered individuals, it becomes difficult for a business to maintain their competitive advantage due to the additional cost of the VAT. You may want to speak with HMRC to see if they can provide a better flat rate than 12% default they currently offer.

Best of luck.
 
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Another thing to think about when dealing with tax, is when your partner (the other company) does something on your behalf, will you be paying him as a contractor or will he invoice you directly for what was done at the customer site?

One has PAYE implications, the other VAT.
 
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Forgot to add, speak to the HMRC. They are EXTREMELY helpful in starting up a company. BusinessLink is another good source of information.

One might be scared of the HMRC to discuss matters like this, but the fact is they give you the correct information as to what the most legal way to do things would be.

Another good source of advice is your local accountant. They have excellent knowledge when it comes to company startups.
 

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