Can you open 2 identical businesses & give each a turnover < VAT threshold?

Answer 1

If the businesses are really identical then you are on dodgy ground. I'll explain why at the end.

First thing to remember is that it is not the business that is registered but the person. So if you own two businesses then you must aggregate the turnover for the registration tests.

To get round this the businesses have to be owned by separate entities. These could be companies, or you as an individual or partnerships in any combination.

Even so they can still be considered as one person if there is significant intertrading or financial dependence between them. Customs will look for financial, economic and organisational links.

They can then make a direction that the businesses be treated as one person. To overturn this you would need to show that they are truly separate.

If the facts are such that it is not really clear they are linked it might be worth trying. The good news is that the Customs direction cannot be backdated.

BUT, (and this is where you could come unstuck), they may try to argue that there was only ever one person. This would enable them to backdate the registration and charge interest and penalties.

If you want to, check out the case of
Garton & Anor t/a The Dolly Tub [2000] BVC 4026.

Answer 2

This can be considered fraud. If you have one business and separate it into multiple companies simply to avoid tax, you could easily run into a problem with the revenue. However if there is a rationale for setting up two companies (one for a product a and one for product b) it gets closer to the grey area. However, with VAT, the revenue is very agressive with tax cheats given that you would have an unfair advantage over your competition who comply as you can charge lower prices. The penalties and hassle that could accompany this is not to be underrated. Plus the admin hassles of having double compliance is generally not worth it.

Answer 3

You could start 2 separate limited companies on this basis. However, if they were two unincorporated businesses with the same sole traders and/or partners, you would be hard put to convince HMRC that they were separate businesses I think.