Tax liabilites on taking over a sole trader going concern

Phil72 · May 18, 2009

Hi all,

I am currently in talks with the owner of a clothing retail shop about the purchase of the business.

The owner is a sole trader and vat registered, the premises are rented.

I will be a sole trader and vat registered at the point of taking over the business, this will be my first and only business.

My concern lies in the tax and vat situation regarding the business and the liability for any tax or vat due from before the date the I take over the business.

If I buy the business, obviously I don't want to get a nasty surprise from the tax or vat man asking for payments from before I owned the business, as a sole trader, are the liabilities for these with the person themselves or with the "business"? As a sole trader the business doesn't have its own legal existence (so I understand), and so my understanding is the person is liable, and as I wont be that person I will be fine?

I know tax is a personal issue as a sole trader and this side of it is probably covered, but the VAT is a concern as I don't know If I can be caught out here?

If anyone can clear this up for me I would be most grateful.

Many thanks

Phil

David Griffiths · May 18, 2009

VAT is only a problem if you take over the existing owner's VAT number. Don't do it!

MyAccountantOnline · May 18, 2009

Hi Phil - I'd definately agree with David!

If you intend to use an accountant it would be wise to speak to them at this stage and get them to assist you in looking at all aspects of the business before you buy it.

Blackberry · May 18, 2009

You don't have to be a sole trader just because the present owner is.

There is nothing to stop you trading through a limited company, get yourself an accountant and they will help you run through all the options available.

Phil72 · May 18, 2009

Thanks for the replies!

So, as long as I have a new (my own) VAT number, and use that from my first day of trading, I cannot be held responsible for any unpaid VAT from before I owned the business?

If so how do I prove that to the VAT man if he comes after unpaid VAT?

Are there any other items I should be vary off that could lead me to be liable for payments that the previous owner did not pay?

Just to point out, I have no reason to beleive the owner has not paid either vat or tax, just my fear of being stung is making me nervous.

Phil

JGOffshore · May 18, 2009

You need to get a lawyer to draft a proper business sale agreement which will cover you in the event that anyone tries to claim debts of the previous owner from you. You can send a copy of that to the VAT man if needed. The previous owner is liable for his own tax on the profits up to the date you take the business over - so get accounts prepared as soon as possible showing what these are. If there are any employees (not the owner, (s)he doesn't pay PAYE) again you may need to send a copy of the agreement to the appropriate tax office.

Please don't try and do this without a legal agreement. There is a guy on this forum offering legal services called LimeOne - get in touch with him.

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Tax liabilites on taking over a sole trader going concern

Phil72

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