Better together?

The frozen VAT registration threshold means there is a big incentive for creating separate legal entities to trade below this limit. Neil Warren considers practical examples and the views of both HMRC and the courts

An undeniable outcome of the annual VAT registration threshold being frozen at £85,000 since 2017 is that more clients and advisers are interested in the controversial topic of business splitting. In other words, can we separate our business into two different legal entities, so that each entity gets its own VAT threshold? This potentially means annual VAT free sales of £170,000 – happy days! 

For a service business making sales to the general public, or a business such as a restaurant that has zero‑rated inputs (food) but standard‑rated sales (meals), the incentive to stay out of the ‘VAT club’ is massive. In this article, I’ll consider the important question: where are we now as far as business spli tti ng is concerned?

Business splitting in practice