What is VAT disaggregation?
Disaggregation (Artificial Separation) is when business owners seek to avoid charging VAT by splitting their business activity across two or more businesses to keep turnover in each business below the VAT threshold.
There are lots of good reasons why you may split business activities, but HMRC will scrutinise this where they believe this may be “artificial separation” of a business.
Business may look to do this in order to avoid paying VAT on activities, which therefore may gain a competitive advantage within their sector and avoid the administrative requirements that come with being VAT registered. HMRC see that this practice qualifies as tax avoidance and has set specific rules designed to ensure only legitimate “business splitting” occurs. This means that you must provide strong evidence to prove there is no FINANCIAL, ECONOMIC or ORGANISATIONAL link between your businesses.
Examples of how HMRC may look to assess if the businesses are linked are as follows:
Financial
- Businesses have the same bank account
- A common business profit or financial interest that benefits both businesses
- Financial dependency on one another.
Economic
- Sharing equipment
- Operating from the same offices
- Sharing advertisements.
Organisational
- Common employees and/or managers.
We help clients to both assess their structures, build robust process and plan for growth. If you are concerned about your structure or what VAT means for your business, then one of the team here at RiverView Portfolio would be pleased to discuss.
