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VAT registration - splitting a business in two

I have a client who runs a personal training business as a limited company. They are not VAT registered but will need to do so soon. They are very concerned that the increase in prices will drive clients away or wipe out their profit if they absorb the rise themselves. They would like to create a second company and have one doing group training classes which would be VAT registered, the other individual training sessions which would remain well under the VAT threshold. I am concerned this looks like artificial separation of the businesses to avoid VAT registration, but it seems very harsh that they would be forced to either make a loss or stop growing their business. Any thoughts?

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06th Dec 2012 12:14

Artificial separation

In my experience, the more separate you can make the business, the more HMRC will be able to accept the split is genuine. If both companies have the same directors, trade from the same premises and share the same telephone numbers etc, you will find it hard to get HMRC accept the split is not artificial. 

Having different directors for each company, separate websites, separate telephone numbers etc will all help.  Separate business premises would also be advisable, but that may be cost prohibitive so if that is not feasible, it's best to try and separate out a proportion of the business premises and have a recharge to the main company. With the other items in place too, HMRC can then accept it as a separate business.  

 

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