Clarification given over VAT rules when spouses operate separate businesses from under same roof

It is not unusual for spouses or families to operate more than one business, often based at the same address, using the same door, and even the same bank account.

In the rural sector particularly such arrangements are not uncommon where husband and wife have different businesses but ultimately all income goes into the same pot.

A recent case (the Belcher case) at the First Tier Tax Tribunal has now found in favour of a husband and wife who were operating two separate sole trades rather than one single business, even though they shared the same bank account and utilities.

Commenting on the implications of the result, Sean McGinness, director, VAT at Saffery Champness, a member of the firm’s Landed Estates and Rural Business Group, and based in the firm’s Edinburgh office said: “There is an advantage in a husband and wife having more than one business, in that each business, for example two sole trades rather than one partnership, will be subject to its own VAT registration threshold, currently £85,000. This is of benefit where VAT is a cost to the customer as neither sole trade would be required to register if under the threshold, whereas jointly their income might make registration mandatory.

“In arriving at its ruling in the Belcher case, the First Tier Tribunal held that the question was whether the respective spouses acted in their own name, on their own behalf, with their own responsibilities, and ultimately for their own economic gain as individuals. The Tribunal concluded that they did, that they were not acting as one business for VAT purposes, and that they did not divide the profits of one business, but instead used one bank to share the profits of two businesses as husband and wife.”

Mr McGinness added: “It should be noted that the FTT reached this decision even though the couple had been submitting partnership tax returns for a number of years, and a number of other factors pointed to them having close organisational and economic links.

“But it must also be cautioned that HMRC would still challenge, and could be successful in challenging, where a business has been artificially split is order to gain a tax advantage. In this case the couple had maintained from the outset that their businesses were separate, despite other factors pointing to the contrary, and the Tribunal placed significant value on this claim.”