FAQ: Can I open up another business doing XYZ that won't be VAT registered?
The question here is whether it's an artificial separation of businesses for VAT, or whether it's for genuine commercial reasons.
Here are some points to consider:
🤑 Financial 🤑
Bank accounts, accounting records and financial statements.
A common business profit or financial interest that benefits both businesses would indicate that they are the same business, artificially separated.
Financial dependency on one another – as above.
Financial support given by one to another would support artificial separation (i.e. if one were not financially viable without the other).
🏭 Organisational 🏭
Common advertisements and promotional spaces.
📈 Economic 📈
Seeking to realise the same economic objectives.
Supplying the same circle of customers.
The more of the above points that are present, the stronger HMRC’s case will be.
Another factor that they may consider would be whether there are two businesses maintaining the appearance of a single business i.e. how the businesses are perceived externally.
To avoid being caught by HMRC for VAT avoidance, you need to prove that the reason for their separation is solely commercial. If you are satisfied that the reason is purely commercial, you would need to make sure the companies have separate business bank accounts, individually recorded invoices and separate accounts prepared at the year end. These should all be filed separately. If you’re operating two businesses from one location, you should also make sure the equipment for each business is separated clearly.
If you want some reading to explain it all, I’d refer you to Mr & Mrs Townsend in the below Taxation article: click here
By Michelle Morris on 21/09/2020 11:10:32