HMRC would frown upon any attempt to split businesses

Don’t believe everything you hear in the pub ... “I am a self-employed plumber, and am doing a lot of work for other businesses. I was thinking of registering for VAT as I’m buying a lot of goods, although my turnover is only £40k.

“I also do work for private customers who wouldn’t want to pay an extra 20%. A bloke in the pub said that I could have two businesses, John Smith and J. Smith, and only register one for VAT.

“So my businesses would go through John Smith and be registered, and my private work to J. Smith. Is this correct and can I register with a low turnover?”

This is a case of don’t believe everything you hear in the pub I’m afraid.

The current VAT registration threshold is £82,000 per annum. If your turnover is below this limit, you can still register on a voluntary basis.

However, you could not split yourself into two businesses – this would be classed by HMRC as being “artificial separation”.

HMRC would take the view that you trying to split your businesses as a way of avoiding paying a tax, and won’t allow it. They view this as being the same equipment being used by the same person and given the outward appearance of one business.

Whether you should register is something that you need to work out, by the amount of VAT you could recover on costs, against what you would have to charge out.

If you are supplying mainly to VAT-registered businesses they can, of course, reclaim the VAT so it makes no difference to them.

Private customers or non VAT-registered businesses would just see the price go up 20%, unless you could reduce your prices to compensate part of the VAT element.

The split of the work you have and how you see the future going should be a consideration. If your business work is going to be shortlived, it may not be worth it.

If you do decide to register on a voluntary basis, you can do so at www.hmrc.gov.uk

You will need to keep detailed records of income and expenditure and submit VAT returns when due.

Gail Kristiansen is a book keeping manager for Rennie Welch LLP and can be 
contacted on 01573 224931 
or via email gail.kristiansen@renniewelch.co.uk