So you’re creeping up towards that £90,000 VAT threshold and starting to panic a little. We get it – registering for VAT can feel like a bit of a faff. Suddenly you’re adding VAT onto your sales, doing regular returns to HMRC, and generally dealing with more admin. You might be wondering… Can I just split my business to stay under the limit?
Let’s talk about that.
What Does ‘Splitting a Business’ Actually Mean?
Some business owners look at their numbers and think, “Could I split my business into two separate ones – say, two different limited companies – and keep each one under the VAT threshold?”
Technically, yes. But (and it’s a big but), it’s not as simple as just setting up a second company and carrying on as normal. HMRC are wise to this tactic, and there are some serious hoops to jump through if you want to go down this road.
The Pros of Separating a Business for VAT
If done properly and legitimately, separating your business could:
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Help each separate business stay under the VAT threshold.
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Give you more flexibility in how you run different parts of the business.
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Potentially reduce your VAT liability (although that depends on the nature of your work and your customers).
The Cons (and There Are a Few!)
Before you get carried away with the idea, here are some things to keep in mind:
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It’s a lot more work. You’ll need to run each entity as a completely separate business. That means different customers, staff, bank accounts, websites, premises – the lot.
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HMRC will be watching. If they suspect you’ve artificially split the business just to dodge VAT, they can clamp down hard – with penalties and backdated VAT to pay.
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Extra costs. Think more admin, more accounts, more tax returns. You might even need to duplicate things like insurance or software.
What the Law Says
You absolutely can run more than one business – loads of people do. But to stay on the right side of HMRC, the businesses need to be genuinely independent of each other. If they’re just a copy-paste version of the same thing, operating under different names, HMRC will likely treat them as one for VAT purposes anyway.
And if you’re thinking of going down this route, you’ll want to review contracts, supplier relationships, customer agreements, and even how you manage staff. It’s not just about the VAT – it’s about running two proper businesses.
Tax Implications
Aside from VAT, splitting your business could affect your:
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Corporation tax
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Payroll obligations
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Expenses and deductions
You’ll also need to keep separate accounts, submit different company tax returns, and potentially deal with different year-ends and accounting software.
Are There Other Ways to Manage VAT Without Splitting the Business?
Absolutely. In fact, for most small business owners, exploring these options first makes way more sense:
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VAT schemes – The Flat Rate Scheme or Cash Accounting Scheme might make VAT a lot more manageable (and even work in your favour).
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Group VAT registration – If you do have genuinely separate businesses, you might be able to register them as a group.
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Optimise your structure – Sometimes a small change to how you invoice or claim expenses can make a big difference to your VAT position.
So, Should You Split?
Honestly? For most small businesses, splitting the business just to avoid VAT isn’t worth the hassle or the risk.
But every business is different – and we know the VAT rules can feel like a maze.
If you’re getting close to that threshold and want to talk through your options, we’re here for it. Whether it’s exploring schemes, tweaking your structure, or just making VAT feel less terrifying, we’re on your team.
FAQs
Can I split my business just to stay under the VAT threshold?
Only if they’re genuinely separate. Otherwise, HMRC will likely treat them as one, and you could land yourself in hot water.
What are the risks?
Increased admin, extra costs, and potential penalties if HMRC doesn’t think the split is legit.
Are there alternatives?
Yes – Flat Rate Scheme, Cash Accounting, or simply improving how you manage VAT day-to-day.
How do I stay compliant if I run multiple businesses?
Keep everything totally separate: staff, accounts, operations, and customers. And get some advice before you make the leap.
Need help figuring it all out? Drop us a message or book a call – we love helping small business owners stay smart with VAT (and stress-free wherever possible!).
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