VAT registration is voluntary, Can I split my business so domestic clients do not pay VAT

I have a limited company that we now only have an annual turnover of £55k approx.
If I split the business to commercial clients remaining on the VAT voluntary registered LTD company, and set up a new LTD company for domestic clients, would this be ok?
The turnover for both businesses combined will remain below the threshold and we would still be paying VAT on all commercial work, but we are losing work for domestic clients are are priced out of the market being 20% more than local competitors.
Thank you!

So when the VAT registered business buys something like stock/materials or a new van, are you saying that the non-registered company will not use the van and not use any of the stock that is owned by the VAT registered business? How are you going to keep stock and materials separate because you do not want to be buying some goods for a domestic job but then accidently reclaim the VAT on those materials knowing that those materials will never be used for a VATable job. For example, you're going to need two accounts at the builders merchants or Costco or wherever you buy stuff because you'll need purchase invoices clearly addressed to the correct company. You can't expect to buy stock from a supplier under one trade account and then use that stock in two entirely different companies (the companies are not you, see them as two entirely separate persons, so why would A buy and pay for goods and then just give them to B and then B would make a non VATable sale but A reclaims the VAT on the purchases it gave away to B?) The right to reclaim VAT is on the basis you are VAT registered and making taxable/VATable supply, where you have two businesses doing the exact same thing but split between a registered and non-registered entity, there are significant risks in you reclaiming too much input tax. For example, if both companies are operating out of the same premises (which is more than likely going to be the case), how are you going to apportion the VAT being reclaimed in the VAT registered company?. Let's take the electricity bill as an example, how much electricity has been used by the VAT registered business for which it is entitled to reclaim a proportion of the input tax on the electricity bill and how much has been used by the non-registered business meaning you cannot reclaim all the VAT in the VAT registered business. What about a new van? You'll want to reclaim the VAT in your VAT registered company but then how do you evidence and convince HMRC that the van is never used by the non-registered business? If the van is used by the non-registered business then it has been used for a non-VATable purposes and so the VAT registered business now has to apportion the input tax originally reclaimed on the van or you'd have to "rent" the van to the other company at market rate and charge VAT. There is also the real risk that once you start increasing your domestic customer base and income increases, the combined turnover of both business will exceed the VAT registration and then HMRC can apply dis-aggregation rules. https://www.gov.uk/hmrc-internal-manuals/vat-single-entity-and-disaggregation-manual/vatdsag05150 Your plans to split the business is not without risk, HMRC will not appreciate you trying to have your cake and eat (reclaim VAT on all your costs but not charge VAT on some of your sales via the 2nd company), it may be possible to separate the two companies in such a way that they are entirely arms length but it is complicated and also not without risk, you will need to be careful about reclaiming input tax (ie, you can't buy 15 UPVC window frames and put into stock and reclaim the VAT and then use 10 of those frames for a domestic job or if you do, you have to pay back to HMRC 10/15ths of the VAT you reclaimed on your VAT return). It sounds like keeping everything separate and keeping track of everything might be more effort than you think and the risk remains you reclaiming too much input tax, so you'd need to apportion what you reclaim and do it in such a way that you can explain and convince HMRC if you ever have a VAT inspection. If you are intent on splitting your trade then perhaps seek some advice from your Accountant, HMRC do not give advice, they can only refer you to the legislation and guidance and what you are asking hovers around the topic of dis-aggregation, and also basic VAT rules on reclaiming VAT directly related to making taxable sales - link here on input tax rules https://www.gov.uk/hmrc-internal-manuals/vat-input-tax

Hi Jess3759,
We are unable to provide specific advice tailored to individual circumstances on this forum. This platform is designated for general queries and aims to assist you in self-serving.
However, if you are not artificially separating the business to avoid VAT registration, this should not be a matter of concern. 
Please refer to the guidance regarding artificial separation at:
Statement of Practice 4 (1983)
Thank you.