In Charles John Caton v HMRC [2019] TC07343, the First Tier Tribunal (FTT) found that a café run by Mr Caton was separate from a restaurant run by his wife.

  • Mr Caton ran a cafe run a cafe for a number of years. His wife opened a restaurant in the adjoining premises a couple of years later.
  • There were different opening hours, leases and tax returns. There were also separate pools of tips and separate tills. Mr Caton did not know the names of the restaurant staff. The operations did not share common areas except a bathroom. The pool of customers was different and customers clearly distinguished between the two businesses.
  • The majority of the supplies were from the same wholesalers. Mr Caton often called himself the owner of the business to visitors including on a HMRC questionnaire. The two businesses shared the same website. Mrs Caton occasionally helped out in the cafe. The leases, insurances and alcohol licences were all in Mr Caton’s name. The kitchen premises were partly shared.

HMRC viewed these as an artificial separation of businesses to avoid exceeding the VAT registration threshold and HMRC looked to combine the businesses.

Mr Caton and wife appealed for the businesses to be treated separately.

The FTT concluded that businesses were separate. The extent of Mrs Caton’s involvement and the partly sharing of the kitchen was minimal.

The appeal was therefore allowed and the associated penalties were quashed.


To avoid the risk of being seen as artificially separating businesses, it is important that the businesses are sufficiently at arm’s length from each other and only have normal commercial relationships with each other.

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Charles John Carton v HMRC [20198] TC07343