So LadyDrP’s business seems to be growing well over the past few years. I’ve kind of kept my eye off the ball a bit, and the turnover has now pretty much gone over the VAT threshold (or did a few months ago…).

The thing is, her goods costs are about %40- 50 of her turnover, and most of the goods don’t have VAT on them: she does aesthetic treatments; botox and dermal fillers – both prescription medicines so VAT exempt.

Now, currrently she’s just set up as a sole trader with ‘a business name’ but nothing registered with companies house.
HItting the VAT threshold is a real pain in the ass, because it’s simply not achievable to charge clients the current treatment costs PLUS vat – people would simply go elsewhere.

SO, she could either suck up the extra 20% VAT charges on TURNOVER as a loss of profit – this would equate to a significant loss in net profit..

Or…

When a client comes for treatment they are dealing with TWO businesses..
Business A – the supply of botox/filler
And
Business B – my wife treating the client, with the product they’ve just bought.

This would pretty much mean each business now has roughly half the annual turnover that my wife previously had, but are both vastly different businesses.
Business B could even remain wifey as a sole trader…

Would this work?
Is the madness??

THoughts on a postcard…!!

DrP

Thoughts?

This is tax avoidance. Legal but morally questionable.

Business B – my wife treating the client, with the product they’ve just bought

Tax man might want a chat about IR35

Scotroutes + 1

Questions for the OP – assuming you work for the NHS, do you get paid by the tax payer? Is the NHS awash with so much money that it doesn’t need any extra cash that VAT avoiding companies manage to hide?

Strongly advise speaking to an accountant.

Sounds dodgy but she may get away with it… but if HMRC look into it there could well be a penalty.

How do her prices compare with those of bigger (VAT registered) businesses? Does she charge the same (so effectively makes 20% more than they do) or less?

Would the Botox, or whatever, still not be zero VAT rated when she sells it on to the client, leaving only her services VATable?

Talk to her accountant though!

^^ interesting thought..
So essentially separating her sole trader business into ‘sales’ and ‘treatment’..Hmm…

DrP

I’m surprised that vanity products like Botox and fillers aren’t subject to VAT in the first place if I am honest. They are a luxury item after all…..

So essentially separating her sole trader business into ‘sales’ and ‘treatment’..Hmm…

Why not…?
Just like most other small businesses, builders, garages etc…

What if treating someone’s displeasure with their facial appearance was AS, or MORE effective in uplifting their mood and confidence as antidepressants…?!

Or.. Botox for migraines…

Each of the above scenarios would be VAT exempt..

DrP

It’s called artificial separation and is illegal, HMRC are pretty hot on it

https://www.gov.uk/government/publications/statement-of-practice-4-1983/statement-of-practice-4-1983

Would she inject whatever a customer brought along, or only what she supplied? If the answer is only her own supply, the businesses won’t ever be separate enough to convince HMRC.

Used to be the laundromat scam in the 90s – set up a chain of laundromats and keep them all separate and under the VAT threshold, although owned by one person. Funnily enough, Customs and Excise as it was then worked it out…

She may get away with it but I wouldn’t risk it – I like a quiet life.

Aren’t the supplies (Botox etc) only VAT exempt if they are being used for medical treatments (improving health) by medical professionals who can get VAT exemption for the actual service? i.e a doctor to treat overly sweaty armpits.

Edit as DrP responded – Obviously you’d have to convince the taxman of that if they ever checked.

Could you not split the business between purely cosmetic / actual medical need?

You’re best off speaking to a good accountant. Its pointless getting it wrong.

So the artificial separation thing DOES seem dodgy 😳

But…
Rather than charging (say) £250 for ‘3 areas of botox’ it could be reasonable to charge £100 for the prescribed botox (No VAT) and £150 for the labour and such (VATable)…

DrP

RE accountants..I had a meeting with a good one today, but this industry is fairly unique. You CAN claim your treatment if FULLY VAT exempt if it’s for medical purposes. As alluded to above, some clients genuinely DO have low mood or body dysmorphia type issues, that a squiz of filler really can help with…

How much of her stuff does she pay VAT on when she buys it?
If it’s no vat coming in it’s no vat going out.
Edit..never ever **** the VAT man off.

Aren’t the supplies (Botox etc) only VAT exempt if they are being used for medical treatments (improving health) by medical professionals who can get VAT exemption for the actual service? i.e a doctor to treat overly sweaty armpits.

So as she’s a Dr, she prescribes the botox/filler for the clients, hence she doesn’t pay VAT on it from the pharmacy.

DrP

Edit:

Could you not split the business between purely cosmetic / actual medical need?

Yes, you could..
Researching it, it seems that HMRC accept that it’s a grey area, and that this is probably the route we’d go down.
Basically, if you keep adequate records highlighting a medical history, and document the psychological upset that whatever they want treatment for causes, and of course you’re a doctor/dentist/nurse, then your treatment CAN be deemed for medical purposes.

BTW as a sole trader it’s their total income from all trades that count towards the VAT threshold they wouldn’t be classed as separate.

What if treating someone’s displeasure with their facial appearance was AS, or MORE effective in uplifting their mood and confidence as antidepressants…?!

I don’t want to get into a slanging match, but……um……yeah, right-o 🙄

Presumably in my case my bike and a pint down the pub should be VAT exempt as they make me feel better, yes?

If there was a proven medical need, then couldn’t the NHS prescribe the treatment and thus the ‘patient’ could get it free anyway?

Bear in mind that you are effectively asking about tax evasion (yes evasion not avoidance) here, so the moral high ground is not really attainable.

Presumably in my case my bike and a pint down the pub should be VAT exempt as they make me feel better, yes?

Not really, because they aren’t provided by someone from a suitable body i.e medical or dental profession!

And RE the proven medical need and the NHS offering it… I get where you are coming from, I really do… but… if anything, these would be classed as low priority procedures.. I mean I have patients with eyelids that droop so much they can’t see, yet won’t be treated on the NHS..!!

Anyway…

DrP

If there was a proven medical need, then couldn’t the NHS prescribe the treatment and thus the ‘patient’ could get it free anyway?

Free prescriptions? There’s a thought…

I’m not an accountant, but it might be worth looking at a ‘flat rate vat’ arrangement with hmrc.

The fact your wife is a doctor doesn’t have any bearing on the treatments being used for cosmetic services so are exempt from medical treatment and therefore would subject to VAT for both the purchase and sale, see 4.4.
https://www.gov.uk/government/publications/vat-notice-70157-health-professionals-and-pharmaceutical-products/vat-notice-70157-health-professionals-and-pharmaceutical-products

Not really, because they aren’t provided by someone from a suitable body i.e medical or dental profession!

cool, can you start up a bike shop & sell prescribe us all VAT free bikes? 🙂

Presumably in my case my bike and a pint down the pub should be VAT exempt as they make me feel better, yes?

All you need is a medical degree and a pub and you could be quids in.

Sounds a bit questionable on both a tax and professional level to my untrained eye!

Are prescriptions not between the patient and the pharmacy supplying them? So doctor provides prescription but patient needs to go and get the medicine. At that point VAT should be getting paid no?

She’s effectively writing a prescription for someone, acquiring the drugs under their name, and then dispensing it to them. Surely there’s a breach of some prescribing regulations there?

Merely intrigued as it seems a good way to have a side business selling opiod’s that were prescribed to made up patients.

Sorry, DrP, I think I’ve been a bit heavy-handed here.

I am actually an accountant, but a (very lapsed) management accountant. Speak to someone who would know for sure, an ACCA accountant or maybe even float it with HMRC(?)

Anyway, in the spirit and all that…..

Consider what you are asking here and apply it to another sphere where the initial supply is not VATable but the business in question is enhancing the product (by using it in a service to the client). So, the company decides to bill its customers for just the raw materials, albeit at a huge markup. It then sells the service for a small nominal fee. What the taxman will see is a transaction that cannot make any sense unless something nefarious is going on. The client’s bill shows them paying (let’s just say) 3x the true worth of some raw materials. Why would anyone do this – unless they were really paying for a service, which is hidden.

I would wager that this was first tried approximately five minutes after the idea of VAT, variable chargeability and thresholds was first imposed(!)

Splitting the companies effectively achieves the same thing.

Splitting companies that would otherwise simply become liable to pay VAT on exactly the same services is the same thing (as in the launderette example above).

If a tax accountant advises you otherwise, then I’ll stand corrected, but if you take the specifics out of your example and overlay it onto something more obviously devious I think you can see it is the same thing……

Anyway – best of luck, but deffo seek advice, and sorry again for being bolshie with you……

This seems to sum it up,
VAT Advice

Seems like it is a bit of a challenge.
Maybe VAT register and start looking for anything you can claim the VAT back on, does she travel to the client or do they come to her? Does she rent space? Does she need to go to a Botox conference in Gastad?
Oh and accountants costs!

Pay tax

Two Dr’s in the household and your asking how to save a few quid.

Get that tax paid you bourgeois rascal….

Or asking how to make a small business stay profitable and provide a popular service while staying within the law…and providing a person with a job.

Are prescriptions not between the patient and the pharmacy supplying them? So doctor provides prescription but patient needs to go and get the medicine. At that point VAT should be getting paid no?

She’s effectively writing a prescription for someone, acquiring the drugs under their name, and then dispensing it to them. Surely there’s a breach of some prescribing regulations there?

Nopedy nope… I’m afraid you’re not at all correct there, sorry..

And survivor – I don’t want to do anything illegal at all. Honestly! Just looking at the best way of maintaining family finances (I appreciate that sounds terrible! I”m not a bad person! Honest!)

By the same principles, no one should EVER use Quidco , ask for CRC vouchers, or use their BC discount in Halfords…

DrP

Put better by TheDTs…!

So . . . what treatments do you have, DrP?

because it’s simply not achievable to charge clients the current treatment costs PLUS vat – people would simply go elsewhere.

How are “elsewhere” managing to do it for less ?

she does aesthetic treatments; botox and dermal fillers – both prescription medicines so VAT exempt.

Is she not paying VAT on any of her supplies of these currently then ?
That seems very odd to me.

How would it work if she wasn’t a doctor able to write a prescription for VAT free products for her clients?

scotroutes and andyl at the top of page 1 have summed it up.
As for not being registered with Companies House – rather you than me in managing the fallout.
Talk to your accountant about VAT registration, splitting business and setting up new company – your missus does have a business accountant?
Companies House take a dim view of dodging the rules and can impose substantial penalties – as can HMRC.
Are you saying your missus has been trading without a company registration? Illegal.
On what basis does she pay tax?

scotroutes and andyl at the top of page 1 have summed it up.
As for not being registered with Companies House – rather you than me in managing the fallout.
Talk to your accountant about VAT registration, splitting business and setting up new company – your missus does have a business accountant?
Companies House take a dim view of dodging the rules and can impose substantial penalties – as can HMRC.
Are you saying your missus has been trading without a company registration? Illegal.
On what basis does she pay tax?

Are you pissed? She is a sole trader. What the **** do Companies House have to do with it?

Are you saying your missus has been trading without a company registration? Illegal.
On what basis does she pay tax?

I’m in the shit then. I’ve been trading for 15 years and companies house know nothing about me. 😀

As for the OP, just listen to craigxxl if you listen to no one else. Splitting the business will attract unwanted attention from HMRC and if they go digging, they won’t stop digging until they can justify their digging with a bill (generally speaking).

Oh and FFS, if she’s gone over the VAT threshold, tell someone at HMRC as soon as possible. Generally they’re sticky enough about late income tax payments, corrections etc but they really like to have a poo on people that muck about with their VAT.

reuben – no, I’m not piseed you charmless scrote.
https://www.gov.uk/set-up-sole-trader