Readers’ forum: Business splitting problem?

I have just taken on a new client who operates a self-storage company which is VAT registered. The director also wishes to open a gym and I’ve suggested she operates this from a new company.

She doesn’t think the gym income will be above the VAT registration threshold so doesn’t have to or want to register for VAT but she wants to be able to claim the VAT back on all the gym equipment she’s going to buy because it is a significant capital investment. She asked if she could buy the gym equipment through her self-storage company claim the VAT back and then rent the gym equipment to the new gym company. My concern is that this would indicate some sort of income splitting arrangement and risk an HMRC direction to treat the two entities as a single business. Are my fears justified? If so is there...