If you own more than one business, each venture must be structured accordingly and satisfy its own tax responsibilities. To avoid complications and errors with your tax return, it’s recommended you keep separate bank accounts and accountancy spreadsheets when dealing with the HMRC.
Although this will require more paperwork in the future, there are many reasons for keeping things separate. Not only will you be able to assess each company’s figures with more clarity, but working out tax payments will be far simpler.
Despite this, tax calculations can still be complicated if multiple businesses are involved. The minefield of legislation to sift through is something most smaller business owners aren’t capable of dealing with, potentially incurring damaging fines in the worst-case scenario.
By hiring a professional accountancy and bookkeeping firm, they’ll help generate efficient tax returns so your company doesn’t pay more than it has to. Remember, when searching for an accountant in the UK, check if they’re accredited with governing body ACCA before hiring their services.
In relation to VAT, two or more self-employed businesses will be classified as one entity by the HMRC. If the combined income exceeds £83,000 then VAT registration is compulsory. For limited companies, it is possible to keep both businesses separate to avoid registering for VAT if desired.
However, be aware that attempts to deceive the HMRC by splitting a single company into two separate entities to purposely avoid VAT registration is illegal. Terms of this can be found under the VAT Disaggregation rules.
If one of your companies is making a loss, tax relief can be claimed by offsetting it against profits of another. However, this tax loss will be still have to be paid if future profits are made by the original company.
Individuals are allowed to set up two separate businesses for income tax and National Insurance Contribution purposes. However, you will need to complete two separate self-employed tax forms as part of your return. Any profits will be added together to calculate your total taxable income.
Also note that registering multiple times as self-employed with the HMRC isn’t required as your status will already be known to them.
If you’re a listed director of multiple companies, then this needs to be noted on your personal tax return. Any benefits received, such as health insurance or company dividends, also needs to be disclosed.
If you’re unsure about how to maximise income from both companies whilst remaining on the right side of the Inland Revenue, utilising the services of a professional accountancy firm is recommended. If required, they’ll explain how to use one company to offset the other’s losses and minimise overall tax liability.
If you found this interesting, you may also find How to Avoid HMRC Penalties and Fines at Self-Assessment Time useful.
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