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bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 9434
Experience:  FCCA FCMA CGMA ACIS
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I have a question with regards to HMRCs stance on

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Hi there - I have a question with regards ***** ***** stance on 'Artificial separation of business for VAT purposes' - A director currently has a domestic cleaning company and is now taking on a lot of commercial work. He currently turns over approximately £40,000 and would like the two types of cleaning to be treated entirely separately. If he were to run 'Domestic Cleaning Ltd' and 'Commercial Cleaning Ltd' as separate companies, with separate employees and as completely separate entities, would this likely raise a red flag at HMRC with in terms of contradicting the artificial separation rules? Do you have any links to useful articles about the subject?

Hello, I am one of the experts on Just Answer and pleased to be able to help you with your problem.

There is no difficulty with this scenario. As the turnover is currently 40K and the VAT threshold is 83K, what is the problem?

Customer: replied 10 days ago.
Hi there - will the fact that the turnover is low as things stand steer away from artificial separation? I understand the VAT threshold is £85k
Customer: replied 10 days ago.
Would there not be a problem even if each company had only one director/shareholder and it was the same person?

Each company is a separate legal entity irrespective of directors and shareholders.

Customer: replied 10 days ago.
OK - so to be clear, you are suggesting that as the turnover is at £40k, that should negate the problem that (for example) reaching £85k and THEN separating into 2 companies could create?

If you anticipate doubling the turnover than an early separation would be beneficial.

Customer: replied 9 days ago.
Thank you - I have put the same query on accountingweb and the gist seems to be that HMRC may see it as VAT avoidance if the combined turnover of the two companies exceeded the £85k VAT threshold?

The quicker you do the split the less likely the inference. .

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Customer: replied 9 days ago.
I agree - thank you

Pleased to have been able to help.