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vat registration

HMRC can direct that two or more businesses should be treated as one for VAT registration purposes. This could mean small businesses having to register and so lose their VAT advantage. Can you overturn HMRC’s ruling?

VAT registration can be unattractive

Avoiding VAT registration can be advantageous where you sell to the general public or you don’t make many purchases on which you pay VAT (input tax). By keeping your turnover below the VAT registration limit you can make your prices more competitive compared with those who are registered. One way to avoid registration and so gain this advantage is to run parts of your business separately. Naturally, HMRC doesn’t like this.

One business or two?

HMRC is always on the lookout for cases where businesses have been kept separate artificially. It has the power to issue a notice that treats them as a single entity for VAT (but not other tax) purposes. This can mean that the “single” business needs to register and thereby lose the no-VAT advantage it had over its competitors.

Divide and rule

HMRC considers financial, commercial and organisational links before issuing an aggregation notice. It did this in the case of CJ Caton and HMRC (2018) . CJ Caton (C) ran a café and his wife (KC), an adjacent restaurant. Given the similar nature of their businesses and their close proximity HMRC was confident it was correct in issuing an aggregation notice. C and KC took a different view and asked the Tribunal to cancel the notice from its inception.

The key factors

C and CK’s businesses had different opening hours and separate tills. They put in separate orders for supplies but used the same supplier and ordered at the same time. Each business had its own staff. Originally, the premises were separate but alterations gave customers access to the same toilets and the café and restaurant shared a washing up area. There were two leases but both in Cs name. KC’s restaurant had an alcohol licence in C’s name. KC’s restaurant sold “specials” through C’s café. KC didn’t have a bank account so card takings went in C’s bank.

HMRC accepts there can be closer than usual links between genuinely separate businesses where they are run by spouses without the need to aggregate them. But it argued that in this case the links were too close. In particular there was only one website for the two businesses and HMRC pointed to the TripAdvisor site where C had responded to comments as the “owner” of both.

Tip. HMRC officers check reviews and similar websites for VAT and other tax purposes. Therefore avoid having a common online presence for your separate businesses.

Decision and advice

The Tribunal ruled in favour of C and KC saying that the evidence “strongly” indicated two separate businesses and not a single entity. The victory was welcome but it cost C and KC a lot in professional fees and hassle from HMRC. They could have avoided this by being more rigorous in maintaining their independence especially when it came to their online activity. Forewarned is forearmed!

This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit or call 01233 653500.

3rd Oct 2023 10:34

VAT VAT Registration

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