Limited company with 2 very different trades

[Jessica@WhiteFieldTax]

The cafe could probably benefit from not being VAT registered at all, to be honest. If it is, then you're automatically going to be 20% more expensive than any small, non-VAT registered businesses, which would be difficult to compete with.

+1

From limited information in thread, my thoughts as well.

In a BtoC scenario, the rule is register for vat as late as possible, cf a B2B when its register as soon as possible (but always exceptions).

TBH with vastly different trades, I'd be inclined to look at a separate company or even, for the first year or so, till things settle down, a sole trader / partnership

[TheCyclingProgrammer]

I get the feeling that you could go back and forth over various technical ins and outs over this (such as the FRS discussion above) but that regardless of any of these issues, the overriding common sense would be to keep these businesses separate.

You keep your company and personal finances separate as they are two separate entities and I don't see why the same advice wouldn't apply for two very different businesses - only if your business activities were similar or linked to your main business would I keep them together.

[Craig at Nixon Williams]

Interesting link Craig. I would argue the example of a non associated company isn't right though...



but it says definitions of associated companies is...



Bearing in mind I am under her dominant influence without question, she has the right to give me directions and does so 24x7 and I habitually comply with all her directions then I would say the husband and wife companies is not a good example of non associated ones wouldn't you?

I think this says more about you and NorthernLady than it does HMRC...

The bit that may be relevant in this situation is that there is likely to be some degree of financial, economic or organisational links between the companies.

The companies may also be associated for Corporation Tax purposes by the fact that they are under common control - the CT bands for each company would therefore be reduced by the number of companies that are associated.

Hope this helps.
Craig

[northernladuk]

Interesting link Craig. I would argue the example of a non associated company isn't right though...

Example 2

A husband and wife are each separately VAT registered in different types of business. Even if they share premises, provided this is charged at a market rate, they will not be ‘associated’.

but it says definitions of associated companies is...

You are associated with another business in this special sense if:

one business is under the dominant influence of another
two businesses are closely bound by financial, economic and organisational links or
another company has the right to give directions to you
in practice your company habitually complies with the directions of another. The test here is a test of the commercial reality rather than of the legal form.

Bearing in mind I am under her dominant influence without question, she has the right to give me directions and does so 24x7 and I habitually comply with all her directions then I would say the husband and wife companies is not a good example of non associated ones wouldn't you?

[blakeyuk]

Blakey - you might want to speak to your accountant about the Flat Rate Scheme because if you have more than one business which is closely related to the other then it will not be able to register for the Flat Rate Scheme – see link: HM Revenue & Customs

Hope this helps!
Craig

Craig - thanks for that. I'll double-check. And if he doesn't give me a suitably confident answer, I may well be in touch about transferring my contracting accountancy to you.

Regards,
Andy

[Craig at Nixon Williams]

It is possible to run both trades through one company, but I would recommend that they are kept separate – one reason for this is because of what you have said in point 2. If the café fails, then by keeping it away from the consultancy work you won’t stand to lose the money made from that and if it is a success and you want to sell it on then you can just sell the shares in the company rather than having to move assets around. If you do sell it on then you will be charged Capital Gains Tax on the sale of the business – the rate is usually lower than what you would pay as income tax on dividends (assuming that you can claim entrepreneurs relief on the gain).

Blakey - you might want to speak to your accountant about the Flat Rate Scheme because if you have more than one business which is closely related to the other then it will not be able to register for the Flat Rate Scheme – see link: HM Revenue & Customs

Hope this helps!
Craig

[DirtyDog]

Hi Blakey,

Thanks for your reply. That's yet another thing I hadn't thought about. Actually the cafe side of things would probably benefit from not being in the flat-rate scheme to begin with anyway, until all the initial investment is over.

Thanks for the post!

The cafe could probably benefit from not being VAT registered at all, to be honest. If it is, then you're automatically going to be 20% more expensive than any small, non-VAT registered businesses, which would be difficult to compete with.

[antio]

Hi Blakey,

Thanks for your reply. That's yet another thing I hadn't thought about. Actually the cafe side of things would probably benefit from not being in the flat-rate scheme to begin with anyway, until all the initial investment is over.

Thanks for the post!

[blakeyuk]

Hi,

I'll give you my experience. I only started IT contracting about 2 months ago, being permie before that. However, I saw a business opportunity at around the same time I started looking into contracting, and have decided to go for that as well. It'll involve evening/weekend work at home for a while, building up a small set of clients, then (if all goes well), taking on a part-time employee to do that whilst I focus on the sales aspect rather than doing the actual work. The second company could come under the same category for flat-rate ("Computer and IT consultancy or data processing"), although it fits squarely in the data processing section - it's not an IT contracting service in the we normally work (ie, I'll have around 15 clients at one time for the part-time person).

( EDIT: I'll be running this alongside the contracting, so income from both business at the same time )

I'm running these under 2 separate companies, to take advantage of the 150K limit on flat-rate. My contracting runs at about 90K turnover, and the other business (once the employee is fully busy) will be about 70K, so that would have made me ineligible for flat-rate - just.

Also, from a logistical point of view, I want to sets of accounts just so I'm correctly working out how profitable the second business is.

Hope that helps,
Blakey

[antio]

Hello, I've read several opposing opinions on this, so am looking for a few more (substantiated) opinions, please!

Current situation: My limited co has been trading successfully for 3 years. Sector: IT consultancy. VAT: Flat rate scheme (14.5%). Currently with 'spare' cash sitting in company account.

Upcoming situation: (Because I'm a bit crazy) I'm opening a cafe. Coffees, teas, sandwiches. Nothing to do with IT. So, I'll need to change to cash accounting. Flat rate VAT will also change to 12.5 ("catering services including restaurants and takeaways"). To complicate things further, I might take the odd IT contract to keep money coming in, but main activity will be the cafe.

Advice so far: Accountant says change is significant so you need 2nd ltd company. I've not been happy with my accountant and want to change them, so not sure I'd like to take their advice without any research. Others say there's nothing wrong with having a single limited company. So here are my questions:

1. Flat rate VAT and cash accounting - is that going to be a problem if I'm getting the odd IT contract?

2. What happens if cafe goes belly up and I need to wind it up? Some people think that closing the cafe side of the business will be complicated with a single company, but haven't provided any reasons. Equally, what happens if it's very successful (ha!) and I'd like to sell it on? Again, I've read this is complicated/not tax efficient, but with no reasons provided.

3. Overall, in terms of tax and other cost savings/efficiency which setup do you think is best?

Finally, do you know (or are you?) an accountant happy discussing these things? Are these standard things (tax planning etc) accountants would discuss, or do I need someone like a 'wealth planner'? I'm considering switching accountants (financial year ends in January!) so would like to hear your good experiences/recommendations, please.

Thanks a lot in advance!