Registering a company name for a hobby to save VAT on equipment

stebag

A family member of mine has a very time consuming and expensive hobby - beekeeping. They keep a number of hives and have 2-3 honey harvests a year, totaling maybe 200 jars of honey. This honey is sold to family / friends etc - the money gained from honey sales doesn't come close to repaying the amount of money spent on the beekeeping equipment every year. An opportunity to supply a local shop with this honey has come up and the question of how to invoice the shop has raised a new question.

This question is - could my family member register a company name for the beekeeping activity, and register for VAT in order to reclaim VAT on the beekeeping equipment? The honey sales (the only product the company would sell) would all be at 0% VAT and the company expenses would likely mean that the company never makes a profit. Essentially it would just be a way to legitimise the sales of the honey and to make the equipment more affordable.

Is this blatantly illegal or is there a way to do it that would be considered above board?

CIARAN_BOYLE

stebag wrote: »

A family member of mine has a very time consuming and expensive hobby - beekeeping. They keep a number of hives and have 2-3 honey harvests a year, totaling maybe 200 jars of honey. This honey is sold to family / friends etc - the money gained from honey sales doesn't come close to repaying the amount of money spent on the beekeeping equipment every year.

My question is - could my family member register a company name for the beekeeping activity, and register for VAT in order to reclaim VAT on the beekeeping equipment? The honey sales (the only product the company would sell) would all be at 0% VAT and the company expenses would likely mean that the company never makes a profit. Essentially it would just be a way to legitimise the sales of the honey and to make the equipment more affordable.

Is this blatantly illegal or is there a way to do it that would be considered above board?

if there's no honest intention to make money it's not a business.

Pandoras Twist

Doesn't the act of selling mean you become a business, whether or not your intention was to be one. I think there's some case law around that. Might have been the one around the bars in sports clubs.

I don't really see any problems with registering for VAT. From memory you don't have to be a company to register for VAT either.

CIARAN_BOYLE

Pandoras Twist wrote: »

Doesn't the act of selling mean you become a business, whether or not your intention was to be one. I think there's some case law around that. Might have been the one around the bars in sports clubs.

I don't really see any problems with registering for VAT. From memory you don't have to be a company to register for VAT either.

nope if your hobby is perpetually loss making and you were a business and registered for vat and it you could reduce the costs of your hobby and claim losses against other income.

if you dont have a(reasonable) inteniton to make money then you are not a business for tax purposes and can't claim advantages available to businesses.

if you regularly sell the product of your hobby you may be a business for consumer laws but not for tax purposes.

stebag

CIARAN_BOYLE wrote: »

nope if your hobby is perpetually loss making and you were a business and registered for vat and it you could reduce the costs of your hobby and claim losses against other income.

if you dont have a(reasonable) inteniton to make money then you are not a business for tax purposes and can't claim advantages available to businesses.

if you regularly sell the product of your hobby you may be a business for consumer laws but not for tax purposes.

I understand the distinction you're making there. I guess I'm wondering where would the threshold be? If my family member were to continue to sell honey for the next 10 / 15 years for example, there would come a time when that activity would turn a profit. As the years go by the investment in equipment will trend towards zero.

More research required on my part... :cool:

bilbot79

CIARAN_BOYLE wrote: »

if there's no honest intention to make money it's not a business.

Is that your opinion or is it the law?

lawred2

some companies lose money from inception to fold... I don't see how the revenue could decide upon the intentions of the business owner?

Mrs OBumble

CIARAN_BOYLE wrote: »

if you dont have a(reasonable) inteniton to make money then you are not a business for tax purposes and can't claim advantages available to businesses.

Individuals can register for VAT, and must do so if their revenue (not profit) is over a certain level. Can individual sole-traders who aren't registered as limited liability companies claim VAT back?



OP - maybe seek advice in the Entrepreneurship and Business Management forum: could this be considered as building business for the person to operate into their retirement, which is only expected to make a profit long term?

One non-tax issue to be 100% on top of is public liability insurance. All it takes is one smart-alec lawyer's relative to claim an allergic reaction (just claim, no need to actually have one!), and a sole trader could easily lose their house. For a food product, I'd be registering a company just to protect from this, rather than for any VAT reasons.

There's also the issue of what public health certificates need to be in place for the manufacturing facility. I know nothing about these - just that it's non-trivial.

Sleeper12

Pandoras Twist wrote:

I don't really see any problems with registering for VAT. From memory you don't have to be a company to register for VAT either.

Correct. A sole trader or partnership can register for vat

stebag wrote:

I understand the distinction you're making there. I guess I'm wondering where would the threshold be? If my family member were to continue to sell honey for the next 10 / 15 years for example, there would come a time when that activity would turn a profit. As the years go by the investment in equipment will trend towards zero.

The threshold of sales where you have to register for vat for goods is up around 75 or 80k per annum. You can register before this but a loss making business draws the attention of the revenue commissioner very quickly. If there was an investigation after a few years they could find that you tried to defraud them or at the very least find that you never was a business for tax purposes and take back any money paid to you plus interest.

There's two simple ways to find out for yourself. You can meet with an accountant and get his /her professional advice or talk to the revenue directly.

Another thing to consider is if you become a business you will have health and safety inspections. You may have to spend thousands kitting out the bottling area. It's a food so I'd assume everyone connected would have to have haccp certificates

meforever

Hi OP....

Difficult route ...........
.ie. Register business in any format. Earn say.... 1K on your honey / annum.

Its a lot of work & expence to verifiably prove to anyone (especially yourself) why you should continue to operate at such a loss making business. For me the notion of the Taxman does not even come into the equation.

Easy route .............
Stay away from the shops. Too time consuming for you. Sell to the people that will pay you a premium. ie. Local people with sinus / Asthma / digestive conditions need a good steady supply of Natural unpasturised honey. Many people purchase 1KG /month for this very reason. PM sent

CIARAN_BOYLE

Mrs OBumble wrote: »

Individuals can register for VAT, and must do so if their revenue (not profit) is over a certain level. Can individual sole-traders who aren't registered as limited liability companies claim VAT back?

Yes sole traders can claim vat back.

If they do it a few times in a row they will be investigated to verify that they are a business. If the revenue investigators decide you don't intend to make profit they will say it's not a legitimate business and disqualify any claims.

bilbot79 wrote: »

Is that your opinion or is it the law?

It's the position advanced by the Revenue Commisioners in Revenue audits that I have been involved in on a client's behalf.