Andrew Needham looks at whether business splitting is a good idea and considers what needs to be done 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.
In such circumstances, they might consider business splitting to avoid VAT registration.
HMRC are aware of this and have a term for it – disaggregation; this is where one business artificially splits itself into two or more entities to avoid VAT registration.
For example, a plumber does work for the public and also for commercial customers. They decide to split their business into a limited company working for the commercial