New queries, issue 4542

Time for tea

Would the creation of a NewCo benefit from a separate registration threshold?

A company operates a successful tea room in a town’s high street. The business is VAT-registered. It now has the opportunity to run the tea shop in a stately home that is a couple of miles away. The company wants to form NewCo to run the new tea room in the stately home. NewCo would be a 100% subsidiary of the existing company. NewCo’s sales would be below the VAT registration threshold so the plan is that it won’t need to register for VAT.

Taxation readers will appreciate that a tea room has mainly zero-rated inputs and sells directly to the public so there are only disadvantages from being VAT-registered. The client’s plan is to purchase all its stock through the existing company and then recharge NewCo. Similarly the payroll would continue to...