HMRC have been updating their manuals (21/10/13).
The purpose of VATDSAG01050 Single Entity and Disaggregation Manual is to help you to determine
- whether two (or more) apparently separate businesses are, in reality, a single entity
- whether, where two (or more) separate entities exist, they have been separated artificially.
Schedule 1,1A (2) of the VAT Act 1994 requires that, in determining whether any separation is artificial, due regard is had to the extent to which the different persons concerned are closely bound to one another by
- economic, and
- organisational links.
Schedule 1, 2(2) of the VAT Act 1994 lays down three conditions which must be met before we can issue a Notice of Direction to any person. These are:
- he is making or has made taxable supplies
- those taxable supplies form part of wider activities carried on concurrently or previously (or both) with one or more other persons
- the totality of the disaggregated activities gives rise to a liability to be VAT registered.
Here is a link to the updates http://www.hmrc.gov.uk/manuals/vatdsagmanual/index.htm
HMRC have some interesting cases, here is an example:
The case of Stephen and Angela Trippitt (MAN/00/0249) VTD 17340 addressed the question of whether a husband and wife could operate two businesses from the same premises.
In this case, the Tribunal decided that
- the traders had successfully separated the activities of public house and bed and breakfast into two separate entities
- we were incorrect in issuing a Notice of Direction.
The facts showed the extent of the commercial relationship between the entities, in addition to which Mrs Trippitt gave 35% of her takings to her husband.
The Tribunal was satisfied that this amount constituted a realistic, commercial, arm’s length contribution towards the value of the shared premises and telephone and utilities.
This decision means that where one entity argues that it pays a fixed percentage of its takings to the other, you need to establish:
- what would happen if there were no takings?
- would a minimal amount still have to be paid?
- if not, how does that entity see these arrangements as constituting a normal commercial relationship, given that it is at no financial risk?
- is there a real monetary transaction (as opposed to just the appearance of one in the books)? Can they provide evidence of this?
For more cases follow this link http://www.hmrc.gov.uk/manuals/vatdsagmanual/VATDSAG08100.htm