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4th September 2013

HMRC will look closely at businesses that are connected by common owners, especially if one or more of the businesses are not registered for VAT . If HMRC believe that the businesses have been artificially separated to avoid VAT then they can assess for VAT due on past transactions if the businesses have not separated successfully, or issue a notice compelling the separate businesses to register as one from a future date.

In general HMRC will apply these rules where the businesses have connected owners and similar activities, however in the case of George Christodoulou HMRC took the view that the appellants sole proprietor restaurant business and a hair salon business that was run in partnership with his wife should be treated as one business. The tribunal decided on the balance of probabilities that the two businesses were separate as the restaurant was run jointly by both the appellant and his wife and the restaurant and liquor licences were in joint names.

The tribunal also commented that the evidence presented by both parties was not helpful in reaching a decision as:

• The self-assessment returns submitted by the appellant treated the restaurant business as solely his income and
• The income was paid into a bank account held in the appellant’s sole name, which would indicate it was run as a sole proprietor business.

However the tribunal also commented that HMRC’s evidence based on meetings with the appellant was to be treated with caution. The questions asked related to concepts that HMRC did not explain to the appellant and therefore the answers he gave could not be relied on as evidence.

This case highlights the need for caution where individuals are involved in more than one business. In most cases there will be a genuine reason for the fact that different businesses exist as many entrepreneurs will have their own business and enter into separate businesses with family and friends. This could easily be misconstrued by HMRC as an attempt to avoid VAT.

In Mr Christodoulou’s case he could have easily avoided a time consuming and costly appeal by seeking professional VAT advice at the time he set up each business to ensure that he was able to fully support the fact that two businesses existed. If you or your clients are in a similar situation to Mr Christodoulou or have one or more businesses where HMRC have took the view that artificial separation may have occurred it would be worth calling our helpline for an initial free discussion.

About the Author

The VAT People are leading VAT and Customs Duty consultants based in the North West of England. We work with a wide range of businesses throughout the UK as well as assisting our accountancy colleagues to unravel the thorny VAT issues for their clients. We are one of the UK's largest and most comprehensive sources of VAT and Customs advice, our consultancy team having over 140 years of experience in VAT and Customs gained in either HMRC or a Big 4 accountancy practice environment.

Call us on our VAT helpline 0800 077 4604 to discuss. All initial discussions are free with no-obligation.

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Article Published/Sorted/Amended on Scopulus 2013-09-06 12:54:07 in Tax Articles

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