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bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 3816
Experience:  FCCA FCMA CGMA ACIS
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I own an engineering company that is Ltd and VAT registered.

Customer Question

I own an engineering company that is Ltd and VAT registered. My company is about to buy a gift shop for my wife to run. The gift shop is neither LTD or VAT registered.
Questions:
1. What would be the best way to structure the books in this instance? Would it be better for me to keep it as two seperate entities and show the purchase price on the first company as a loan to the second? Or show the first company as owner of the second with it being an asset on its books.
2. Should I pay pay my wife a wage as an employee or should she run the gift shop as a self employed sole trader?
3. Should I register the gift shop as a LTD company?
Submitted: 3 years ago.
Category: Tax
Expert:  bigduckontax replied 3 years ago.
Hello, I'm Keith and happy to help you with your question.

I would suggest an appropriate way to operate would be to treat the enterprises as separate. It seems you are considering forming a limited company to run the gift shop. This is a course of action I would recommend as it places a barrier between the persons involved and the company in the event of some future, unexpected adverse event. If the first company's funds are to be used to buy the new business then showing the cost as a loan to the new company is a perfectly permissible way to proceed. You should that a written agreement be entered into between the two companies to regulate the loan covering such matters as loan repayment schedules and interest charged if any. VAT registration depends upon the shop's turnover, the mandatory registration level being GBP 79K.

If your wife is employed the shop company will have to pay the employer's element of National Insurance (NI) in addition to running a PAYE account for her. If she runs the shop as a sole trader ie as a contractor then she will be responsible for her own NI. You will have to work out which approach is more cost effective.

I do hope I have been able to throw some light on your question.
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Expert:  bigduckontax replied 3 years ago.
Thank you for your support. I do hope your new enterprise is successful.

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