VAT and winding up business(long)

Cross-post to ukba

He is a Director and hence an employee as well as 50% shareholder in a limited company that also employs him as a sole trader?

Maybe a cessation of trade, maybe not...

Yikes no professional advice taken!

It is better IMO not to think this way. You should be thinking:

"Many (all?) of the contracts the limited company operates fall under IR35"

In my experience (and Nogood Boyo will come back and tell me I am utterly wrong) this is quite a common scenario at business start-up, events unfold and it is impossible to plan because you have no idea where you are going. A good Chartered Accountant will be able to look back and make sense of all this and put everything in the correct pigeonhole

If something was purchased by a sole trader and it turns ought it was really wanted for a limited company that (say) the ST didn't know about because it hadn't beeen incorporated at that time (just an example), then HMC&E won't care much as long as VAT has been accounted for and no one is trying to pull a fast one.

...OTOH if you want the CA's un ukba to have a stab at it you could could help them by doing what no one in these ng's ever does: give some indication of what particular IT trades these two businesses are operating.

"Troy Steadman" wrote

Is there anything wrong with that?

apart from one obvious thing? ... an assumption that he has a 50% shareholding...

Ignore the Troll!

I think the "and hence" is wrong. He might be an employee, but not necessarily so.

Let's refer to Simon:

"I know there are exceptions but generally a director of a small or one-man band ltd company IS an employee of that company and any claim otherwise would be looked at in great detail by any competent tax man."

The next question for the OP is "How many clients does your Sole Trader friend have?" When the answer comes back "Just the one!" you Ronald can chip in with an update of last week's "Nice try. 53% or 62%" and we'll chime back:

"If it was that easy we'd all be doing it!"

"Matthew Church" wrote

Having just one client does not make a Sole Trader into an employee.

AIUI, it comes down to whether the contract between the person & the LtdCo is a "contract of service" or a "contract for services" - which can only be determined by looking at the contract, and not whether there's only one client or not!

It's a question Dopey and a question cannot be an assumption.

You must really love me to stalk me like this!

Love and Kisses

Troy

XXXXXX

Doh! And this is an IR35 contract and that could be either, right Tim?

No, not exactly. He was running the sole trader business for several years as his main way of earning a living. The ltd company was set up as a sort of *hobby* business that actually turned out to be quite lucrative.

Mmmmh! No!

The ltd co has been incorporated for about 7 years but the Sole Trader Co still remained his major source of income.

The Sole Trading Company is general engineering. Threading steel, making small bespoke components etc.

The Ltd Company makes a specific product.

Thanks for the X-post. ukba is not a group I subscribed to but I do now.

Now, now children.

Yes he does have a 50% shareholding.

No, the sole trader company is seperate, any work done for limited company is as an employee of that company.

In the past the ltd co was not a client of the sole trader but could be in the future if advantageous. The sole trader had numerous customers but the move and stagnation of the business has lost the majority of the client-base. It would be very difficult to build a new one from the new locality, although some work has been coming in. It was rather dependent on local networking and *knowing people*.

The ltd company is not reliant on local customers, is advertised on the internet and already has a list of prospective customers waiting for it to go back into production.

It's your fault Jane, they'd removed their braincell to reply!

Where's our resident VAT expert with his definitive answer :0)

You are in the greyest of grey areas here. I'm no expert but FWIW I don't think your friend has done too much wrong or has too much to worry about.

The irregularity of the whole set up - on the one hand the workshop is a large business premises, on the other it is a small part of a private home ? mean you are never going to get a definitive "right" answer.

The Input VAT on the building is refundable and who else can it be refunded to other than its builder and owner? If it ever goes back into non-business use the VAT will have to be paid back but so what, cross that bridge when you come to it.

Large chunks of private residence being used as business premises is not unusual, have a decko at this thread for what is allowable as business expenditure and what isn't:

The Ltd Co has been operating PAYE correctly. The Ltd Co as a customer of the Sole Trader will not be a problem AFAIK.

Cessation of trade followed by a large refund must undoubtedly trigger a VAT Inspection (surprised it hasn't happened already!) and the VAT Man will no doubt have his particular take on the subject. Until that happens, in the absence of wiser words from the assembled multitude, I would tell your friend to sit on his hands, things are okay as they are.

who cares ?

Scenario

Company A has two directors Y and Z

Company A contracts with Client B for services of Director Y.

Possible IR35 situation but a good look at the contracts and terms would sort this out. Decision could go either way.

Director Z contracts with Client C to provide services but has payment made to Company A.

This is just an assignment of his income. He is either an employee of Client C or legitimately providing services as self employed.

Finally, Company A enters into contract with Client D and has Director Z carry out the work on the contract. If Company A pays Director Z as self employed in these circumstances I would be having a very good look indeed as he is probably carrying out his duties as a director or employee of Company A IR35 or not, and PAYE/Class 1 NI should be acounted for.

Sorry I've been quite lately, not well.