Starting a new business

[kembljoe]

Hi,

I am the director of my limited company and working in that company. This is an IT consultancy company in which I do software consultation and implementation for various companies.

I am planning to start a new business in addition to this current business. I will sell products online by importing from abroad. The website will be implemented and all the sales will happen online.

I do not want to open up a new company and would like to use my existing company. The reasons behind this are:

1. I have capital in my current company after all the dividends and the salaries are taken. I do want to use this capital for my new business without paying any other tax except corporation tax.
2. The 2nd business seems to be related with 1st business as this is again an IT project implementing and maintaining a web-site but selling products as well.

Is it convenient not to create another company and to just use my 1st company for this business from the HMRC's point of view?

If not, how can I use the capital from 1st company for the 2nd company with the minimum amount of tax (or may be no tax except the corp tax)?

[Craig at Nixon Williams]

It is possible to run both trades through the same company - there should be no issues in doing this from HMRC's perspective.

Hope this helps!
Craig

[northernladuk]

You might want to have a think about breaching the Flat Rate Vat limit though.

[Maslins]

You can defo do through one company, I'd typically recommend it at least to begin with (in case the new venture doesn't take off).

Like NLUK says, do consider tax implications, mainly VAT. If it's stuff you'll be selling to end consumers, you anticipate a relatively low turnover (ie sub £79k) and your consulting business is VAT registered then you may want to set up a separate entity for that reason (ie not register it for VAT).

Be a little careful with bookkeeping either way. If you do it all through one company, try to keep separate income/expenditure codes for each business so you can easily tell how well each trade is doing.

If it's a separate business, it's all too easy to mix the two up, ie paying for something relating to one business but using the debit card from the other. Try to avoid this at all costs as you'll get in a right mess with intercompany loans.

[kembljoe]

Like NLUK says, do consider tax implications, mainly VAT. If it's stuff you'll be selling to end consumers, you anticipate a relatively low turnover (ie sub £79k) and your consulting business is VAT registered then you may want to set up a separate entity for that reason (ie not register it for VAT).

If I am already paying the VAT when I purchase the items from abroad, then in that case is it still worth to have a separate non-VAT company even though my turnover is below £79K?

[northernladuk]

If I am already paying the VAT when I purchase the items from abroad, then in that case is it still worth to have a separate non-VAT company even though my turnover is below £79K?

I think a quick chat with your accountant is in order.

[VectraMan]

Also, consider what happens if your new business fails. You've effectively have no limited company protection because you'll have to pay the debts of your new business out of your contracting income.

[Maslins]

If I am already paying the VAT when I purchase the items from abroad, then in that case is it still worth to have a separate non-VAT company even though my turnover is below £79K?

If you buy something for (say) £100+VAT = £120 and you know you can sell it for (say) £180, then if you're not VAT registered you can have a gross profit of £60 per sale. If you are VAT registered your sale price would be £150+VAT, so your P&L ends up being £150 - £100 = £50 profit per sale.

The above assumes you're selling to end consumers who couldn't reclaim VAT. If you're selling to businesses it becomes less relevant as they could reclaim VAT you charged them.

[Craig at Nixon Williams]

On the VAT stuff, as these businesses are related you cannot have one which is VAT registered and the other which is not.

See link: HM Revenue & Customs: When to register for UK VAT

Hope this helps!
Craig

[kembljoe]

If you buy something for (say) £100+VAT = £120 and you know you can sell it for (say) £180, then if you're not VAT registered you can have a gross profit of £60 per sale. If you are VAT registered your sale price would be £150+VAT, so your P&L ends up being £150 - £100 = £50 profit per sale.

The above assumes you're selling to end consumers who couldn't reclaim VAT. If you're selling to businesses it becomes less relevant as they could reclaim VAT you charged them.

I will send these products to end users who could not reclaim VAT, therefore your answer is very smart and yeah, in this case I will lose some money due to the VAT being more in the selling operation than in buying operation.

And it seems like I will not be able to exceed £79K turnover limit in the first year. In this case, creating another non-VAT company makes more sense.

But then the second part of my question arises...

"how can I use the capital from 1st company for the 2nd company with the minimum amount of tax (or may be no tax except the corp tax)?"