VAT business splitting

Tax Comments Off on VAT business splitting

A reminder that HMRC will not look favorably on any scheme that aims to minimise VAT liabilities by splitting businesses up in order that the annual turnover of each remains below the registration threshold.

HMRC are required to consider the extent to which businesses are ‘closely bound to one another by financial, economic and organisational links’ when determining if there has been an artificial separation of businesses for the purpose of VAT avoidance. HMRC will consider the following factors in making their decision.

Financial links

  • financial support given by one part to another part
  • one part would not be financially viable without support from another part
  • common financial interest in the proceeds of the business.

Economic links

  • seeking to realise the same economic objective
  • the activities of one part benefit the other part
  • supplying the same circle of customers.

Organisational links

  • common management
  • common employees
  • common premises
  • common equipment

Care should be taken in organising the VAT registration status of connected businesses. Please call if you are concerned that you may be caught by these regulations.

Lesley Malkin, Audit Partner