Two Amazon shops, one business: HMRC can add them together

Running a second Amazon shop in a partner's name keeps each shop under the £90,000 VAT threshold only if the two really are separate businesses. Where they are not, HMRC can treat them as one, and VAT then falls due on the combined sales.

There are two different ways that can happen, and the difference decides how far back the bill goes.

When it was one business all along

If, as a matter of fact, the two shops are a single business run by the same people, HMRC treats them as one from the start. Its internal manual describes a single business as one carried on by one sole trader, partnership or company, however many streams it has been split into.

That is the expensive outcome. The VAT registration rules say that if you register late, you must pay VAT on any sales you have made since the date you should have registered. If the combined sales passed the registration threshold three years ago, the bill starts three years ago.

When two businesses are bound too closely

Sometimes the shops genuinely are two businesses, each run by a different person. HMRC can still treat them as one if the separation is artificial. The VAT Act lets it issue a direction naming the people involved, who are then treated as a single taxable person. In deciding whether separation is artificial, the law has HMRC look at how closely the businesses are bound by financial, economic and organisational links.

A direction takes effect from the date it is made, or a later date it sets, so it does not reach back. HMRC's manual adds that it does not have to prove anyone intended to avoid VAT, only that the separation had that result.

What HMRC looks at

HMRC's checklist for these cases covers each business's VAT history, its staff, its finances, its organisation, its legal documents and its customers. For two online shops, the questions are these:

• Is the stock bought from the same supplier, on one account, and kept in one place?

• Is there one bank card, one loan or one pot of money paying for both?

• Do the same people pack, list and answer messages for both?

• Do the listings, branding and customers overlap?

Family ties alone are not the test. HMRC's guidance notes that tribunals have accepted a wife can help in her husband's business and still run a business of her own.

What the combined figure costs

Illustration, not a real couple. Nadia and Sam sell phone cases from Southall through two Amazon seller accounts, one in each name. Each account takes about £75,000 a year, all standard-rated. The stock comes from one supplier, is stored in one garage and is packed by both of them, and one card pays for it.

Separately, each shop is under the threshold. Together they take £150,000. At 20 per cent, VAT is one sixth of a VAT-inclusive price, so if prices stay where they are, £25,000 a year of that money belongs to HMRC, less the VAT they can reclaim on stock and fees.

• Under a direction, that runs from the date of the direction.

• If HMRC shows it was one business, it runs from the date the combined sales first required registration, which could be years earlier.

If you run two shops

Look at the arrangement honestly, from HMRC's side of the table. If the two shops share stock, money and people, they may already be one business for VAT. That is easier to put right before HMRC asks than after.

Our VAT threshold tracker shows when a rolling 12-month total crosses £90,000 and the date registration takes effect. Run it on the combined sales of both shops, not just on each one.

About the author

Harvey Dhillon is Founder and CEO of Zmartly, an accountancy firm for ecommerce sellers. He grew up in West London and began his career in finance at Barclays, in investment banking and wealth management, before going full-time on Zmartly in 2020.

Featured photo by Kampus Production on Pexels.