Can I split my business to avoid charging VAT?


– You must register for
VAT if your turnover exceeds £85000, or you know that it will. This is everything that you have sold that is not exempt from VAT. A common myth is that you
can split a business up to keep below the threshold. For example, splitting a 100K business into two 50K businesses. HMRC will not allow you to artificially separate your business in order to keep your business
below the VAT threshold, hence avoiding registration. If HMRC believe that your business has financial, economical
and organisational links and the purpose of the split was to avoid registering for VAT, they can force you to register. Here are some indicators
that HMRC will bear in mind when judging if your business is in fact separate entities. You should have separate bank accounts and accounting records,
marketing and advertising of the business should be separate, one entity should not be
financially dependent on the other, the business should have
a different customer base, transactions need to be separate. For example, if the
businesses share premises, then the overheads must be split, meaning a cash transaction
must take place. It cannot just be an accounting entry. In one real-life example,
a husband and wife operated two businesses
from the same premises. In this case, they operated a pub and a B&B in the same premises. The wife paid 35% of her
takings to her husband. This was considered a realistic commercial arm’s length contribution to the value of the shared
premises and utilities. In this case, the businesses
were declared separate. If HMRC consider that your businesses are, in fact, a single entity, they will need you to register for VAT. If they deem your businesses were never intended to be separate entities, they can order you to
backdate registration and pay all the VAT that
would have been due. I hope you found this useful. If you would like to know any more, then please get in touch
using the details below.

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