VAT on multiple companies

[Tony McC]

I have been researching the VAT implications of starting several companies at once and I am finding it very difficult to navigate my way through what seems to be a grey area.

My situation is that I am setting up a new business which is a franchise. Each franchise is a geographic/postcode area. The turnover projected for each area is well below the Vat threshold and the implications of being vat registered are quite large as the selling price is fixed and by therefore having to pay the vat element to the vat man I will lose 22% of my GP.

Clearly if I group more franchise areas together I will break through the VAT threshold eventually.

I have considered setting up each franchise as a separate business and legal entity as a way to get round this and whilst I will be the guiding force behind each business they will be distinct businesses with separate bank accounts, trading names, accounts, etc. In essence this is what would happen if someone else bought the areas.

The advice I have received ranges from yes this is ok, to it is ok until you get discovered when you may have to register but would have to pay retrospectively and finally to no this is tax avoidance and could have more serious consequences.

Any help or advice would be much appreciated as I am truly unsure how best to proceed. It is important for me to be legal but the viability of the opportunity will be seriously in question if I have to register for Vat.

Thanks Tony

 

[heyadrian]

If the franchises operate entirely as separate companies, with separate books as if they didn't know each other at all then there should be no issues. If they do business with one another, then you just send an invoice from one to another as you would a client. The recipient would pay as normal inclusive VAT unless exempt.

VAT returns would be separate.

I personally operate as ONE company with many departments (rather than branches)...

I personally prefer it like this even though the VAT band is hit, but it gives me a clearer look at what is going on, and simplifies my paperwork come the VAT runs.

It's entirely up to you how to run it, but I would consider speaking to BusinessLink about the best ways to do this as they have business mentors to advise you on the to's and not to do's.

Furthermore, the HMRC are a good source of information, and they often hold tax workshops FOR FREE with this information all in there