Can my new salon avoid being VAT registered?
Q. My company is VAT registered because we own seven hairdressing salons in various city centre locations. I would like to open another salon in a village, which will be smaller than our existing salons, with anticipated annual sales of £75,000. Is there a way of forming a separate entity for this salon so that it does not need to pay VAT on its takings because totals sales are less than the annual £85,000 registration threshold?
A. It is possible to carry out a business split as long as the new salon trades on a completely independent basis, i.e. with its own supplier accounts, takings book, accounting records, stylists, rental agreements, etc. It must obviously trade as a different legal entity to your VAT- registered company. Care will be needed to ensure that any shared overheads with your existing business are properly recharged at market value. It would also help if the new salon had a different ownership mix to the main company and also its own trading name. If a split is carried out in this way, then any HMRC challenge to the arrangement can only be from a current or future date. But if the split is not done properly, e.g. accounting records and expenses are muddled, HMRC could claim that there has never been a separate business and seek to assess output tax retrospectively by up to four years.
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