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bigduckontax
bigduckontax, Accountant
Category: Tax
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I have a limited company that provides architectural and structural

Customer Question

I have a limited company that provides architectural and structural engineering design for people looking to extend their home via an extension, loft conversion, cellar conversion etc. I provide the architectural services but I also provide the structural calculations for the steel beams or timber roof structure, foundations etc.
It is quite unusual that one company or person provides both the architectural and structural services as these are usually provided by different people.
Over the last year I have done well and am now pushing the VAT registration threshold of £82k. I dont have many costs on which I pay VAT so if need to would probably register for the flat rate VAT of 14.5%.
If I go VAT registered I would need to probably absorb the VAT into my current pricing as if I add 14.5% on top its will likely make me un-competitive as I am already at the more expensive end of the fee price range due to me providing the unique service.
My question is: is there a way of being able to split the company, or form a separate company, so that I can account for the architectural services separate from the structural services and keep the turnover below the VAT threshold?
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I'm Keith and happy to help you with your question. First warning, the VAT threshold is actually 81K, not the 82K quoted in your question and includes standard rate, reduced rate and zero rated supplies.
No problem whatsoever, just form two companies to operate your business as convenient. However, there is a sang. If you are the director of the companies formed you are deemed an employee and must be remunerated under PAYE arrangements. Thus the company will be saddled with the employer's element of National Insurance. Furthermore, even if you are not an employee you can easily be caught by IR35 which requires PAYE to be operated for contractors to companies who are effectively employees to put it simply. PAYE these days is done on line and you may find it a bit of a palava to operate.
So you see whichever way you turn you come up against Benjamin Franklin's dictum that in life there are but two certainties, death and taxes. If it's not VAT it's Employer's National Insurance, but as far as VAT is concerned your thoughts are sound.
I do hope I have shed some light on your position.
Customer: replied 2 years ago.

Keith

Thanks for your answer.

I currently pay myself the £833.33/month tax free allowance and then take the rest of my remuneration as dividend at the preferential tax rate. I then pay Corporation Tax on turnover and the employers NI contribution which from memory isn't too much.

If I form a separate company and as a director have to take remuneration through PAYE I'm assuming I could pay myself the £833.33/month but this would be taxable on a personal basis. I would also pay the employers NI and Corporation tax.

I'm assuming I could take dividend at preferential rate from both companies.

Therefore the only additional amount would be the additional personal tax on he £833.33/month from the second company.

Im assuming this would be far less than having to pay the 14.5% on all the £81k?

Hope this makes sense from my engineers brain!

From the Franklin quote hopefully I can resolve my tax issues before the former certainty kicks in!

Expert:  bigduckontax replied 2 years ago.
Please remember that only the first GBP 2880 is entitled to the 10% dividend tax rate. Thereafter the dividend(s) will be taxed at your marginal rate.
I can see what you are currently doing, taking income up to the Personal Allowance from your one company and as the NI rates differ making the appropriate payments. If you use two companies then to achieve the same end you would to have to use half each unless there are sufficient surpluses in one to absorb the full 10K of income. Be careful though, if you fund one company from the other then that funding would come into the VAT turnover amount and you might, once again, breach the registration level.
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bigduckontax, Accountant
Category: Tax
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Experience: FCCA FCMA CGMA ACIS
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Expert:  bigduckontax replied 2 years ago.
Thank you for your support.

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