Separating a business for VAT purposes

Listed Under: Blog



A question that is sometimes asked is that where an individual has two distinct trades within their business then is it possible to split the business into two?  Often this question is borne from commercial reasons, such as a desire to accurately see how much profit each trade is contributing, or splitting off a part of the business that the owner thinks could
be saleable separately in the future. 


However separating a business can have VAT consequences.  Take for example a director of a limited company which has sold shoes for the last 20 years is above the VAT threshold and registered for VAT.  He decides to start selling rubber ducks alongside the shoe business.  Shortly after he realises that the rubber duck market is booming and it could be a saleable business in the next few years so he decides to transfer the trade to another company in which he is the sole director, but not register that company for VAT as it is under the threshold. 
Clearly the intention with this process was not to avoid VAT, but as a result the new company won’t end up paying VAT on the rubber ducks.


So how would HMRC view this position?  They could argue, given that VAT registrations relate to individuals rather than businesses, that the trades have been artificially
segregated or “disaggregated”. 

This determination would be based on a question of fact and
consider whether the businesses:

  • Have financial segregation and autonomy?
  • Have operational segregation and autonomy, e.g. they use their own equipment, their own employees?
  • Have distinct contact information, including phone numbers and Website address?
  • Have separate business premises?


If you’re thinking of separating your business then speak to us first.
Contact us here