Andrew Needham looks at whether business splitting is a good idea and what a business will need to do to make it effective.
As a business that deals with the public (e.g., a plumber or hairdresser) approaches the VAT registration threshold, they realise that when they register for VAT, they will either take a 20% pay cut in order to remain competitive or increase their prices by 20% and lose customers; so some consider business splitting to avoid VAT registration.
Business splitting
HMRC is aware of this strategy, and has a term for it – ‘disaggregation’. This is broadly where one business artificially splits itself into two or more entities to avoid VAT registration; for example, a plumber who does work for the public and alsofor commercial.&
