Vat Or No Vat That Is The Question

[RedKapp]

Hi there all,

I currently have a question i could do with a bit of advice on......

One part of our company is being sold of to an outside buyer,
These people are listed as a pharmacy type company and therefore are VAT exempt.
We however are registered for vat...

My question is should we charge Vat! they are saying they dont want us too but i'm not sure bout that one.

Oh we are both UK companys.

Thanks Very Much!

[David Griffiths]

The current status of the purchaser is not relevant, although I don't understand why a "pharmacy type company" should be exempt.

What is relevant is if the disposal of "part of our company" qualifies to meet the rules applying to transfer of a business as a going concern. Those rules apply not only to the sale of a complete business, but can also apply to sale of part of a business if it is self contained and a going concern in its own right. The relevant rules are here (http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_ShowContent&id=HMCE_CL_000093&propertyType=document#P38_4553)

If you are selling a self contained business unit that in itself has turnover that exceeds the VAT threshold, then the purchasers may well become liable to register for VAT on the day that they take over. If that's the case, then VAT must not be charged on the assets that are transferred. If it is a going concern and you mistakenly charge VAT, then the transferee will not be able to reclaim it.

That's a basic outline, and as always with VAT the full facts must be taken into consideration. One of our resident VAT experts may be along later to add to this, but I'd suspect that there may be too much at stake here to rely on advice from a forum - pay a VAT expert to advise you properly.

[RedKapp]

I belive the company i work for are currently getting hold of our auditors/accountants to check this.

But the lads selling the part of the company are always asking questions and i feel like i need to give them awnseres

thank you very much for the outline

[spidersong]

I'm not sure why a pharmacy type company would be VAT exempt, most pharmacological supplies would be taxable, many at the zero rate, but nonetheless a taxable activity under VAT law. The only reason they'd be exempt is if they were directly providing welfare or medical services.

Anyway, the only reason you'd have for not charging VAT on the sale of part of your business is if it meets the definition of a Transfer of a Going Concern (TOGC). In order for it to do this it must have the following criteria:
If selling part of a business that part must be suitable for seperate operation.
The recipient must be intending to carry on the same kind of business using the assets transfered.
If the seller is VAT registered, then the buyer must become VAT registered at the date of transfer.
There should not be a series of consecutive transfers.

So if they're not registered for VAT (and don't need to become registered due to the transfer itself which may force them to) then you need to charge them VAT, unless the goods and assets you're actually selling them could be zero rated or exempt (any property involved?) in and of themselves.

EDIT: I see I had the reply window open too long and David beat me to it, so basically: What he said!