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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Artificial separation

Brightster |