Q. Can I split my business into parts which are all below the VAT threshold and therefore avoid registering for VAT?

A: Essentially you are describing artificially splitting a business, and there is legislation in place to prevent this practice - known as disaggregation. Not surprisingly, HMRC are against such avoidance arrangements!

A company or individual which is not registered for VAT may be more price competitive than one which is, especially where the customers are unable to reclaim VAT.

One perceived “solution” is to split the business into two or more entities, so that each one trades below the VAT registration limit. HMRC believe that such avoidance is not only a loss to the public purse but it creates a situation of unfair competition.

Therefore, they have powers to add together the turnover of the entities so that they become VAT registered. In this situation HMRC may serve a direction.

Also, HMRC can register a company or person from an earlier date to reflect there was only ever one business run as a partnership between the various parties concerned. Thus, an assessment for back tax and a penalty could also be issued. HMRC often choose this option and don’t issue a direction at all.

In addition, if a person has been subject to a disaggregation order and HMRC believe that there is a further split in the business with a “new” person making supplies, HMRC can issue an order that adds the new person to the registration from the date of the original order.