Can company split music business into two and deregister?
Q. My business trades as a limited company, selling musical instruments and giving piano lessons. All lessons are given by me, as I am the sole director and shareholder. The annual fees from lessons are £50,000 but the annual sales of instruments have fallen a lot since the pandemic to £70,000. The company is VAT registered but can I split my business into two legal entities, so that I can then deregister?
A. There is an easier option for VAT, which is to disincorporate your business. This is because private tuition given by a sole trader or member of a partnership is exempt from VAT if the subject is ordinarily taught in a school or university. Piano lessons would definitely qualify as a relevant subject.
Exempt income is ignored for VAT registration purposes and your annual taxable supplies figure of £70,000 from the instrument sales is below the compulsory registration threshold of £90,000. Alternatively, it will be possible to split your business into two entities as long as you keep separate accounting records, bank accounts, invoices, etc. This is because the two trading activities are very different, so you are unlikely to be subject to a business splitting challenge from HMRC. See The next step for detailed commentary on the education exemption.
See VAT Memo for detailed commentary on the education exemption
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