VAT Business Splitting

A reminder that HMRC will not look favourably 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 is 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.

If you are concerned that you may be caught by these regulations or would like guidance on these issues please call freephone 0808 144 5575 or email our Tax team:

Disclaimer – Please note: The ideas shared with you in this article are intended to inform rather than advise. Taxpayers’ circumstances do vary and if you feel that tax strategies we have outlined may be beneficial it is important that you contact us before implementation. If you do or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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