Neil Warren CTA (Fellow) ATT considers the pros and cons of splitting businesses to reduce VAT liability, with a warning about HMRC’s powers to treat separate entities as a single registration for VAT purposes if they are closely connected
I’ve just had a new carpet fitted in my house, which has produced two major benefits: firstly, it has made the bedroom look much more stylish, a royal suite rather than the forgotten spare room. Secondly, it gave me first-hand experience of how the carpet industry will go to great efforts to save VAT on fitting charges. Let me explain.
Separate supplies
I purchased my carpet for £600 including VAT from a medium sized retailer in Birmingham. The deal was promoted as having a ‘free fitting service’ – in other words, I pay £600 and no more.
The paperwork produced by the salesperson made it immediately clear that I was in fact making two separate purchases, namely a carpet from the retailer (goods) and a separate supply by a self-employed fitter (labour).
