Your sales are getting close to the VAT line, and a friend suggests opening a second business to keep both halves small. Before you do, it helps to know how HMRC looks at it. If you are wondering “can I have 2 businesses to avoid VAT?”, this guide gives you the rules, the warning signs and the safer options.
- The 2026/27 registration threshold is £90,000 of taxable turnover in any rolling 12 months. The deregistration threshold is £88,000.
- VAT registers a person, not a trading name. A sole trader adds up all of their business activities.
- HMRC can combine separate people or companies when their activities are closely bound by financial, economic and organisational links.
- Late registration can mean VAT on past sales, a penalty and interest.
- VAT schemes and the registration exception are lawful ways to manage the cost.
Can I have 2 businesses to avoid VAT? What the rules allow
Owning more than one business is perfectly legal. What matters for VAT is who the “person” is behind each business, and how independent the businesses really are.
The VAT threshold for sole traders: one person, one turnover
HMRC registers the person, not the business. Its registration manual says a trader must take all of their business activities into account.
So a sole trader who runs a window-cleaning round and sells crafts online has one turnover figure. If the two trades together pass £90,000, that individual must register, and the registration covers both trades. Using two trading names makes no difference.
Two businesses, one VAT registration: when it can work
Different legal persons are tested separately. A limited company, a partnership and an individual are each a separate person for VAT. So it is possible to have two businesses where only one is VAT-registered.
For example, a taxi driver who also owns a bakery company could register the bakery and not the taxi work, or the other way round. This works when each business has a real life of its own. It does not work when the second person or company exists mainly on paper.
The VAT threshold for 2026/27
You must register once your taxable turnover for the last 12 months goes over £90,000, or if you expect it to go over £90,000 in the next 30 days alone. You can ask to cancel your registration if turnover falls to £88,000 or less.
| Rule | What it means |
|---|---|
| Registration threshold | £90,000 of taxable turnover |
| Deregistration threshold | £88,000 |
| Looking back | Check the last 12 months at every month end. Register within 30 days of the end of the month you went over. |
| Looking ahead | If you expect more than £90,000 in the next 30 days alone, you must register. |
| Short-term spike | You can apply for an exception if the rise is temporary. |
Sources: GOV.UK: Register for VAT and VAT Notice 700/1 supplement, checked 29 October 2026.
The threshold rose from £85,000 to £90,000 on 1 April 2024 and has stayed there. Because the test rolls forward each month, one busy season can tip you over even when your tax-year total looks comfortable.
What is HMRC artificial separation?
Artificial separation, also called disaggregation, is where activities that really form one business are split between two or more persons, so that VAT is avoided. HMRC has a legal power to treat those persons as a single taxable person.
Disaggregation meaning in plain English
The legal test HMRC applies
The power sits in VAT Act 1994, Schedule 1. HMRC’s summary of the law sets out two parts:
- How closely bound the persons are. HMRC must consider the financial, economic and organisational links between them (paragraph 1A).
- Three conditions for a direction. The person makes, or has made, taxable supplies; those supplies are part of wider activities carried on with one or more other persons, now or before; and the activities taken together would require registration (paragraph 2(2)).
Before a direction is issued, the HMRC officer must be satisfied that all of these points are met. The decision rests on evidence about how the businesses actually operate.
Does HMRC have to prove you meant to avoid VAT?
Not in the sense most people expect. According to HMRC’s guidance on the disaggregation law, HMRC does not have to prove an intention to avoid VAT. It does have to show that the separation was artificial and that it resulted in VAT being avoided. So a good motive does not protect a split that is artificial in practice, but HMRC still has to make its case on the facts.
VAT disaggregation rules in practice: a self-check
Use these questions to see how your set-up might look to HMRC. They are drawn from the three types of link in the law. HMRC’s own detailed checklists are not published.
| Question | Link | A sign of independence |
|---|---|---|
| Is money moved between the businesses without proper terms? | Financial | Each pays its own costs and keeps its own profit |
| Does one business fund or guarantee the other? | Financial | Separate funding, or a written loan at fair terms |
| Do they sell to the same customers from the same place? | Economic | Different markets, products or locations |
| Would one stop trading if the other closed? | Economic | Each could carry on alone |
| Does one person make the key decisions for both? | Organisational | Each owner controls their own business |
| Are staff, tills, booking systems or websites shared? | Organisational | Own resources, or documented hire at market rates |
Two set-ups compared
Similar turnover figures can lead to very different results. These two illustrative cases show why the details matter.
Suppose HMRC treats this as one business, every pound of the £118,000 is a VAT-inclusive, standard-rated sale, and prices do not change. The VAT inside those takings would be £118,000 ÷ 6 = £19,666.67 a year. This is only an illustration. The real amount would depend on the VAT rates that apply, the dates involved, any VAT reclaimed on costs and any scheme used.
What happens if HMRC decides it is one business?
HMRC can reach one of three conclusions. One legal person ran everything; the split was artificial; or the businesses are genuinely separate. Each leads to a different outcome, as set out in HMRC’s guidance on possible conclusions.
If one person was really running everything
That person should have been registered all along. Missing the deadline does not change HMRC’s duty to register a trader from the correct effective date, according to HMRC’s registration manual. This means VAT can be due on sales made since that date, even if you never charged it.
A failure-to-notify penalty may also apply. It is a percentage of the VAT lost, set by your behaviour and how you came forward. For a non-deliberate failure, HMRC’s penalty ranges run from 0% to 30%, and the deliberate ranges are higher. On top of this, late payment interest is charged at the Bank of England base rate plus 4%.
If the split was artificial
HMRC can ask its VAT Registration Service to issue a Notice of Direction. This registers the separate persons as one taxable person from a date stated in the notice, and any existing registrations are cancelled. The new entity counts as a partnership for VAT only, according to HMRC’s guidance on directions.
Reviews and appeals
For VAT decisions, HMRC offers a review in the decision letter. You then have 30 days to accept the review or appeal to the tax tribunal. The tribunal deadline cannot be extended, so act quickly and keep clear records of how each business runs.
Which splits does HMRC usually accept?
HMRC accepts that some arrangements are separated for sound commercial reasons. Its guidance on arrangements that are not artificial mentions:
- genuine franchise arrangements;
- managed pubs owned by a brewery or pub chain;
- charities that keep bar sales separate to protect their charitable status;
- salons where the stylists are employees rather than self-employed; and
- driving schools and taxi firms, which follow separate HMRC guidance.
Lawful ways to manage the cost of VAT
If the real worry is the extra cost, these routes are built into the system.
- Flat Rate Scheme: you pay a fixed percentage of your VAT-inclusive turnover. You can join if you expect taxable turnover of £150,000 or less, excluding VAT, in the next 12 months. A business that is closely associated with another business cannot use it. See the Flat Rate Scheme rules.
- Cash Accounting Scheme: you account for VAT when customers pay you, not when you invoice. It is open to businesses with taxable turnover of £1.35 million or less, under the Cash Accounting rules.
- Registration exception: if you pass the threshold once but expect turnover to fall back, you can apply for an exception from registering.
- Voluntary registration: useful if most customers are VAT-registered, because you can then reclaim VAT on your costs. Our guide on reclaiming VAT as a business explains how reclaims work.
- Pricing plan: decide how much of the 20% you can pass on before you register, not after.
Common mistakes with two businesses and VAT
| Mistake | Possible result | Better approach |
|---|---|---|
| Testing each sole-trader trade against £90,000 on its own | Late registration, VAT on past sales | Add every trade you run personally |
| Putting a relative’s name on part of your trade | Notice of Direction | Only split if they truly own and run it |
| Sharing staff or premises with no recharge | Evidence of close links | Written agreements at market rates |
| Missing the 30-day review or appeal window | Losing the right to challenge | Get advice as soon as the letter arrives |
FAQs about two businesses and VAT
Can a sole trader have two businesses with one under the VAT threshold?
No. A sole trader is one person for VAT, so all of their business activities count together. If the total passes £90,000, one registration covers every trade.
Can I have two businesses and only one VAT registration?
Yes, if the businesses are run by different legal persons, such as you and a limited company, and they are genuinely independent. HMRC can combine them if they are closely bound together.
What is the disaggregation meaning in VAT?
It means artificially splitting one business between separate persons so that each part stays under the registration threshold. HMRC can respond by treating those persons as one taxable person.
Does HMRC need to prove I intended to avoid VAT?
No. HMRC must show the separation was artificial and that it led to VAT being avoided, but it does not need to prove your intention.
Can my spouse run a separate business that is not VAT-registered?
Yes, if your spouse genuinely owns and runs it, with their own customers, money and decisions. A family relationship alone does not merge two businesses.
Can I appeal if HMRC says my businesses are one?
Yes. HMRC offers a review in its decision letter. You have 30 days to accept the review or appeal to the tax tribunal.
Final Verdict: Can I Have 2 Businesses to Avoid VAT?
So, can I have 2 businesses to avoid VAT? You can own two genuinely independent businesses, run by different legal persons, and each is tested against £90,000 on its own. Splitting one trade to stay under the line is risky, because HMRC can combine the parts and collect VAT. A VAT scheme or an exception is usually the safer route.
- Add up your rolling 12-month taxable turnover for every trade you run personally.
- Work through the self-check table and note any close links.
- Talk to us before you restructure: call 0116 4030595 or email info@majoraccountancy.com.
Why trust this guide
- Written by Shahinur Chowdhury, a UK accountant at Major Accountancy.
- Thresholds and rules checked against GOV.UK and HMRC manuals on 29 October 2026.
- Built on HMRC’s own VAT Single Entity and Disaggregation Manual, not forum opinion.
- General information only, not personal tax advice.
- GOV.UK: Register for VAT
- VAT Notice 700/1 supplement
- GOV.UK: Apply for an exception from registering for VAT
- HMRC VATREG02200: Registration of the person
- HMRC VATREG25500: Effective date of registration, failure to notify
- HMRC VATDSAG01100: Introduction to the law
- HMRC VATDSAG02100: Possible conclusions
- HMRC VATDSAG05150: Disaggregation, the law
- HMRC VATDSAG05200: Arrangements that are not artificial separation
- HMRC VATDSAG07200: The entity created by a direction
- HMRC CH73200: Failure-to-notify penalty ranges
- GOV.UK: Late payment interest on VAT
- GOV.UK: Disagree with a tax decision or penalty
- GOV.UK: VAT Flat Rate Scheme
- GOV.UK: VAT Cash Accounting Scheme