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  • Paul Clifton

One Business or Two - Watch the VAT man


Disaggregation of businesses for VAT

HMRC will look closely at businesses that are connected by common owners, especially if one or more of the businesses are not registered for VAT. If HMRC believe that the businesses have been artificially separated to avoid VAT then they can assess for VAT due on past transactions if the businesses have not separated successfully, or issue a notice compelling the separate businesses to register as one from a future date.

In general, HMRC will apply these rules where the businesses have connected owners and similar activities. However in a recent case HMRC took the view that the appellant’s sole proprietor restaurant business and a hair salon business that was run in partnership with his wife should be treated as one business. The tribunal decided on the balance of probabilities that the two businesses were separate as the restaurant was run jointly by both the appellant and his wife and the restaurant and liquor licences were in joint names.

This case highlights the need for caution where individuals are involved in more than one business. In most cases there will be a genuine reason for the fact that different businesses exist as many entrepreneurs will have their own business and enter into separate businesses with family and friends. This could easily be misconstrued by HMRC as an attempt to avoid VAT.

In the above case, the owner could have easily avoided a time consuming and costly appeal by seeking professional VAT advice at the time he set up each business to ensure that he was able to fully support the fact that two businesses existed.

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