Hi,
My wife and I run a cafe in the Scottish borders as a partnership and are currently VAT registered as our turnover is over the current threshold. I am looking at starting up a small website design business on my own but do not expect to be anywhere near the VAT threshold with this. I want these two businesses to be separate and it would be better if I didn't have to charge VAT for the web design as most of my customers would be small businesses also operating under the threshold. I would appreciate any advice on this please. Thanks
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It's not the business that is VAT registered, it's the entity that runs it. So that means that you and your wife are registered as a partnership. If the partnership opens up a new business, in any field that is VATable, then the income of that business is dealt with under the original registration

The obvious answer is for you to operate the web business as a sole trader, or through a limited company. That way you wouldn't need to register until you exceed the turnover limit - currently ?7k.

There are rules agains the artificial separation of businesses, but in this case they are so different that I can't see that you would have a problem, particularly if your wife takes no part in running it.
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Thanks David for the quick response and the precise answer. It makes it a much more viable proposition if I can do this. Thanks again.
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Havent ever tested the theory, and also dont know how partnership vs single person works, but have been strongly advised in the past that two limited companies owned by the same person are immediately linked (irrespective of business type) as are Ltd Co owned by sole trader, and sole trader with multiple businesses. That is to say that the "entity that runs it" part can be drilled down/up to the ultimate controller, and setting up ltd cos doesnt necessarily alleviate the problem.

This scenario seems a hell of a lot more draconian than the basic principle of "artificial separation" so I would be interested to hear from anyone who has real life experience (either success or failure) in this area.
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Havent ever tested the theory, and also dont know how partnership vs single person works, but have been strongly advised in the past that two limited companies owned by the same person are immediately linked (irrespective of business type) as are Ltd Co owned by sole trader, and sole trader with multiple businesses. That is to say that the "entity that runs it" part can be drilled down/up to the ultimate controller, and setting up ltd cos doesnt necessarily alleviate the problem.

This scenario seems a hell of a lot more draconian than the basic principle of "artificial separation" so I would be interested to hear from anyone who has real life experience (either success or failure) in this area.

This is not the case Fathippy. HMRC will only seek entities which are linked when the trades are the same or very similar.

If the OP wanted to open a chip shop as a Ltd and still have the cafe then No. If OP wanted to open a B&B then again, potential for disaster - but a cafe and a web design service are far different enough not to be an issue for the OP or HMRC.
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Havent ever tested the theory, and also dont know how partnership vs single person works, but have been strongly advised in the past that two limited companies owned by the same person are immediately linked (irrespective of business type) as are Ltd Co owned by sole trader, and sole trader with multiple businesses. That is to say that the "entity that runs it" part can be drilled down/up to the ultimate controller, and setting up ltd cos doesnt necessarily alleviate the problem.

This scenario seems a hell of a lot more draconian than the basic principle of "artificial separation" so I would be interested to hear from anyone who has real life experience (either success or failure) in this area.

With the companies, are you getting mixed up with the concept of associated companies for Corporation Tax? Although a small company can normally earn ?00k of profits at the small company rate, that's reduced when there are associated companies - i.e. ?50 k each for two or ?0k each for six companies. And it's not just companies owned by the same person, there are rules about links with a spouses business and even parents or siblings, although the Revenue generally ignore these unless they are in the same business.
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possibly - since i have dragged this out of my memory and not something written down or notes. That may explain why it does seem more stringent than what I would understand from the meaning of "artificial separation".
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Artificial separation defined:

Do not avoid registering for VAT by artificially separating business activities

If you run more than one business the sales in all those businesses must normally be added together to determine whether or not you must register for VAT.
However, if you are involved in the running of several separate legal entities, you may not need to combine the sales of those businesses to find whether you need to be VAT registered.
If HMRC decides that you artificially separate one business into smaller parts to avoid registering for VAT, it can decide that the entire business is a single taxable person and therefore must be registered for VAT.
Situations that HMRC may consider a single taxable person for VAT purposes include:


Separate entities selling to registered and unregistered customers. The VAT registered business sells only to VAT registered customers and the business not registered for VAT sells to customers who are not registered for VAT.
The same equipment or premises being used by different entities on a regular basis. The premises and/or equipment are owned by one of the parties, who charges rent to the others. This situation may occur in businesses such as launderettes and takeaway food operations.
Splitting up what is usually a single sale. This is common in industries such the bed and breakfast trade, where one business supplies the bed and another the breakfast.

If you deliberately avoid registering for VAT, you may be liable to a penalty. For serious offences, the matter will be investigated and you may be prosecuted.

http://www.hmrc.gov.uk/vat/reg-how-to.htm#3
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