Cost vs Benefit of creating a second limited company

[Alan 1630]

Hi

I'm new to this site so apologies if this is covered in a forum elsewhere.

I have a limited company that comprises my consultancy work & my business & life coaching. They are two completely separate activities with no overlap. I'm about to reach the UK VAT threshold so will either need to (i) register for VAT, or (ii) separate the two businesses into separate entities. Neither would then reach the VAT threshold in the next two years.

With Option 1 there would be no issue with registering for VAT for my consultancy as it's always managed through invoices to VAT registered businesses. However clients of my Life Coaching and Business Coaching services are typically individuals and smaller businesses so a 20% increase would be problematic. Also my spend on marketing, overheads, etc. is negligible so very little of the VAT will be recovered.

So with Option 2 it will come down to cost & administrative burden. I pay an accountant to do my accounts, PAYE (it's just me) & tax return & this costs c.£2k per year already.

Any advice?

Alan 1630

[Lance]

I cannot see any reason to not separate them.

Although I also cannot see that anyone with enough cash to spend on 'life coaching' would be that bothered about VAT either. But if that side of the business is small why not do that as a sole trader?

[Maslins]

Like Lance suggests, sole trader is perhaps an option for one of them. Unsure if there's much benefit to doing it that way, the admin would be slightly easier than for a Ltd Co...but where you'll already have 1 Ltd Co, you might find it simpler to get your head around doing 2 x that, rather than 1 x Ltd Co and 1 x sole trader.

Sounds like you've already considered the key issue. VAT when selling to non-VAT registered entities. Like you say, the businesses are different enough that I think you'd be perfectly justified in separating them out (ie it wouldn't just be unlawful VAT avoidance by artificial separation). I would however ensure you did then keep them separate based on business activity...ie if hypothetically your consultancy work had a client that wasn't VAT registered (or life coaching side had one that was), do ensure you still invoice them from the company with that activity normally. You'd be on shakier ground if you were invoicing for both types of work via both companies just based on whether client was VAT registered or not.

If you're currently paying £2k/year for accountancy for one company, that is quite a lot. I'd have thought you could get both done for that.

[Fred Bloggs]

Hi

I'm new to this site so apologies if this is covered in a forum elsewhere.

I have a limited company that comprises my consultancy work & my business & life coaching. They are two completely separate activities with no overlap. I'm about to reach the UK VAT threshold so will either need to (i) register for VAT, or (ii) separate the two businesses into separate entities. Neither would then reach the VAT threshold in the next two years.

With Option 1 there would be no issue with registering for VAT for my consultancy as it's always managed through invoices to VAT registered businesses. However clients of my Life Coaching and Business Coaching services are typically individuals and smaller businesses so a 20% increase would be problematic. Also my spend on marketing, overheads, etc. is negligible so very little of the VAT will be recovered.

So with Option 2 it will come down to cost & administrative burden. I pay an accountant to do my accounts, PAYE (it's just me) & tax return & this costs c.£2k per year already.

Any advice?

Alan 1630

You're paying the accountant far too much for one company.

[Alan 1630]

I cannot see any reason to not separate them.

Although I also cannot see that anyone with enough cash to spend on 'life coaching' would be that bothered about VAT either. But if that side of the business is small why not do that as a sole trader?

Thanks Lance, appreciate the response. My coaching clients don't necessarily have a load of disposable income, it's just how they choose to spend what they do have. Adding 20% would make me less competitive.

[Alan 1630]

Like Lance suggests, sole trader is perhaps an option for one of them. Unsure if there's much benefit to doing it that way, the admin would be slightly easier than for a Ltd Co...but where you'll already have 1 Ltd Co, you might find it simpler to get your head around doing 2 x that, rather than 1 x Ltd Co and 1 x sole trader.

Sounds like you've already considered the key issue. VAT when selling to non-VAT registered entities. Like you say, the businesses are different enough that I think you'd be perfectly justified in separating them out (ie it wouldn't just be unlawful VAT avoidance by artificial separation). I would however ensure you did then keep them separate based on business activity...ie if hypothetically your consultancy work had a client that wasn't VAT registered (or life coaching side had one that was), do ensure you still invoice them from the company with that activity normally. You'd be on shakier ground if you were invoicing for both types of work via both companies just based on whether client was VAT registered or not.

If you're currently paying £2k/year for accountancy for one company, that is quite a lot. I'd have thought you could get both done for that.

Thanks for this really helpful response Maslins. I'm 100% confident that it's appropriate to separate the businesses & not register for VAT, at least for now. There really is no crossover, it's just that I do 2 separate jobs & initially I decided to invoice for everything from one company. On the cost of accountant, I wanted to use a bigger firm to get me set up, get tax advice, etc. but I now think I could probably pass it to a bookkeeper & reduce my fees significantly. And you also make a really good point on the sole trader vs. Limited point. I'm more likely to replicate what I have on one side so I know how everything works. I also need to be careful about liability if anything should ever go wrong so I prefer to be a limited company.