I’ve just read the most surprising VAT tribunal decision in the case of Mr & Mrs Belcher (TC05891) who seem to have been very lucky indeed. I would definitely not recommend anyone adopting the same arrangements for their own business; I doubt many would achieve the same outcome.
The argument was whether Mr & Mrs Belcher each ran their own business below the VAT threshold or actually operated as a single VAT registrable business. Pointers towards one business were that they only had *one bank account; *one set of year-end accounts; *one account with suppliers; *one utility bill; *one insurance policy and *filed one income tax return as a partnership. At this point I was thinking they had definitely lost the battle!
Contrast the Tribunal (seeming to be extremely sympathetic) deciding to ignore the pointers towards it being one business and instead placing greater weight on being satisfied that “they never expressly agreed between themselves to operate … in partnership. They had no conscious intention to run a single business in partnership.”
Factors in favour of there being two separate businesses included *Mr and Mrs Belcher took on and dismissed their own staff; *had separate tills and separate ledgers; *had different pools of customers who were managed differently and *expenses of each shop were met out of their own respective takings.
To my great surprise the tribunal was satisfied that, despite all other contrary factors, Mr and Mrs Belcher each bore their own economic risk and therefore could be accepted as running two separate businesses.
As for why it was so mishandled in the first place, the tribunal was “puzzled … by the fact that neither Mr nor Mrs Belcher (nor, indeed Mr Roderick [their accountant] advising them) seems to have given any [attention] to liability to register for VAT”.
People will keep overlooking this little tax but given that it has such sharp teeth it really is worth thinking about properly – and sooner is always better.