VAT registration is based on the person, not the business. Two sole trader businesses run by the same individual will therefore count as one for VAT registration purposes. A husband and wife can have separate businesses along with a company and sole trader.
HMRC will argue that the business activities should be aggregated where there are “close financial, economic and organizational links”. Court cases have established that separate businesses should be treated as one where one person is controlling all business activities. If a spouse owns each business, ensure:
- There is no involvement in the other’s business.
- There is no financial inter-dependence of any sort between the two businesses.
- one business would not be financially viable without support from the other.
- Any finance to buy a business comes from the owner of that business.
- There is separate business insurance.
- The customers are different.
- They have different employees.
- There is separate overheads and expenses.
- The public’s perception must be of two different businesses.
- They use separate equipment.
- There are separate bank accounts and accounting records.
- The reason for separate businesses is commercial and not because of tax avoidance.
HMRC has the power to direct that two or more businesses should be treated as one business for VAT purposes, even if those businesses are separate legal entities, such as limited companies If you are deemed by HMRC to be artificially separating sales you will be required to pay VAT on all sales and you may be issued with a penalty.