Running Two Businesses And VAT
Summary of Key Points
- If you are setting up more than one business and intend not to register one or more for VAT, beware of the HMRC rules on artificial splitting.
- Maintain the separation of the different businesses in as many ways as possible.
- Avoid running the businesses in ways which make them appear to be the same business.
When starting more than one business, people often think there is no problem running them separately for VAT and tax. There is no legal definition of a “separate business” but it is very clear that HMRC will not look favourably on someone setting up several businesses each of which has sales below the VAT threshold – £85k from 1 April 2017 – when together they would be over that threshold. Anything blatantly artificial will end up being forcibly registered by HMRC.
The Key Question
The following question is the key one considered in the VAT Tribunals:
“Are the businesses closely bound by financial, economic and organisational links?”
Separation of structure has also featured in cases.
- Are the businesses operating independent of financial support from one to the other?
- Would they both be financially viable without support from one another?
- Have they got separate pools of income, distinct from one another?
- Are the two businesses seeking to realise separate economic objectives?
- Is there no mutual benefit to each business from the activities of the other?
- Are they supplying different customers? (and not simply VAT-registered versus not-registered customers)
- Are there two separate legal entities?
- Is there a genuine commercial reason for the separate businesses?
- Do the businesses have separate management?
- Do they have separate employees?
- Are there separate bank accounts?
- Are separate year-end accounts being prepared?
- Is there separate advertising and marketing?
- Are there separate phone numbers, e-mails, trading styles, logos, signage?
- Are there separate premises - or at least separate floor space usage?