Readers’ forum: Will business split avoid problem with VAT?

A husband-and-wife client are VAT registered and trade as a hairdressing partnership; they also own a buy-to-let house in joint names so they are partially exempt as far as their VAT registration but claim all of their input tax with the de minimis rules.

They have now decided to rent out the property to short-term holiday makers and temporary visitors – rather than through short-term tenancy agreements – so the income will be subject to VAT with the new arrangement. The client has asked if they can form a new limited company for the new activity which will not need to charge VAT to the punters because its annual income will be less than the registration threshold of £90 000. The existing partnership would charge rent to the company at market value which would presumably still be exempt from VAT because the partnership is not making supplies...