Most Practitioners will be aware that it is possible to avoid the need for VAT registration by splitting the business activities into separate legal entities in order to stay below the VAT registration threshold.

However if there is an artificial separation of business activities HMRC can issue a direction to prevent VAT avoidance.

There have been a number of tribunal appeals in which the appellant was successful and these cases illustrate the difficulty of making directions stick.

Often the targets of directions are separate activities of similar businesses operating from the same premises.

The obvious example is a public house where one spouse runs a pub as a sole trader and the other spouse operates a separate activity of providing food at the same premises.

But operating from the same premises is not a factor mentioned in the legislation.

Competition issues arise and the absence of any sanction could result in unfair competition.

Practitioners who are advising clients on how to structure their business need to look closely at the rules. Where the separation of business activities is not artificial and each activity is in a separate legal entity the taxable turnover for each activity can be looked at separately for the purposes of VAT registration.

The above article is prepared for guidance only. It is not possible to cover all aspects of this area of taxation in a single article. The article is not intended to give guidance on individual cases. No responsibility can be accepted for any action taken, without contacting us before acting on any information contained in the article.