Vat registration when buying an existing business

[devilmaycry]

Hi,

I am buying a VAT registered business that is a ltd company. But I am only buying the assets and not the ltd company itself.

Therefore, with my completely new ltd company, would I be able to register for vat once my turnover hits £70k? Or because it has previously been registered for vat, would I have to register immediately, even though it is a completely different entity?

The business itself is not going to change. However, I the trading name will.

Any help is much appreciated.

 

[5wire]

Although a different entity as you said I believe you have to register for VAT when you anticipate / forecast to exceed the £70k.

From Business Link;

If your turnover of VAT taxable goods and services supplied within the UK for the previous 12 months is more than the current registration threshold of £70,000, or you expect it to go over that figure in the next 30 days alone, you must register for VAT.

As the business is operating under a different name you would only be required to register for VAT as stated above.

 

[akirk]

if you are buying in assets (e.g. stock / equipment etc.) then you are not buying a VAT registered business. It is no different from going down to the high street and buying paperclips - just because WH SMith is VAT registered, buying paper clips from them does not require you to VAT register

if though you are actually buying their business, then a different issue potentially - I assume that you have an accountant advising you on the purchase?

Alasdair

 

[David Griffiths]

It doesn't matter if you are buying only assets, if you are taking over the business as a going concern, and it is a VAT registered business, then you have to register from the day that you take over. HMRC link

The vendors must not charge you VAT on the assets or stock. If they do, you will not be able to recover it.

If it is claimed that it is not a going concern, make sure that you take proper paid for advice as getting it wrong is very expensive.

 

[Rhodes100]

A Vat Registered business has to charge vat on an sale of an asset, it doesnt matter whether you are buying one item of stock or the assets lock stock and barrel.

To prevent them charging vat you have to show a valid vat registration number on the day of completion, then the transfer is exempt.

If you do not show them a valid vat number you will be charged the vat rate perhaps 20% on the sale of the assets which includes the goodwill.

 

[David Griffiths]

A Vat Registered business has to charge vat on an sale of an asset, it doesnt matter whether you are buying one item of stock or the assets lock stock and barrel.

To prevent them charging vat you have to show a valid vat registration number on the day of completion, then the transfer is exempt.

If you do not show them a valid vat number you will be charged the vat rate perhaps 20% on the sale of the assets which includes the goodwill.

Sorry but that's just not correct. The purchasing company does not have to be VAT registered at the date of transfer. If it is, the going concern rules apply, but they also apply if the transferee becomes liable to be registered as a result of the transfer. It is not necessary to actually have a VAT number on that day.

I've lost count of the times that vendors' solicitors have got this wrong.

 

[Rhodes100]

Link please David to your source for this advice.

I think that the vendors solicitors are actually getting it right, and you are the one that is wrong!

 

[David Griffiths]

Link please David to your source for this advice.

I think that the vendors solicitors are actually getting it right, and you are the one that is wrong!

Link to HMRC

Not the hardest document to find

Section 2.3.4

Where the seller of the business or part of the business is registered for VAT, the purchaser must be registered or at the date of the transfer be required to be registered for VAT because all of the conditions for compulsory registration are met, or have been accepted for voluntary registration. This condition is not met if the purchaser is not registered and is not required to be registered for VAT. This could be either because:

Over to you

 

[devilmaycry]

So I don't have to register? And can wait until my turnover hits £70k?

 

[Rhodes100]

No you have to be required to be registered for VAT because all of the conditions for compulsory registration are met.

I think that it would be a foolhardy adviser who advised their client that they could transfer the assets of a business on a promise that the purchaser will at some time in the future register for vat.

Assume the purchase price is £50k, then vat on that figure will be £10k in the New Year. Let assume that the purchasing business never provided a valid vat registration number. The vendor would then be liable to pay £10k vat to customs and excise.

So the OP will need to be vat registered as the vendors solicitor would not be stupid enough to leave their client open to such a liability.

 

[David Griffiths]

It isn't on the "promise" that they will be VAT registered in future. It's on the legal basis that that the purchaser is, at the time of the transfer, liable for compulsory VAT registration. As the document that I linked to points out, the TOGC rules are compulsory and not an option

If the purchaser fails to comply with the legal obligation to register, that is not the fault of the vendor, who will have acted properly in applying the regulations

As I've said, solicitors get it wrong but understand the position when it is pointed out to them

 

[Rhodes100]

David, I think you are misinterpreting the rules. In fact Business Link agree with my argument.

http://www.businesslink.gov.uk/bdot...ype=RESOURCES&itemId=1083079948&r.t=RESOURCES

It IS the fault of the vendor if they know that they are selling say £100k of turnover to the purchaser and they know that the purchaser "needs to be registered", but still does not either charge vat or obtains a valid vat registration number.

Business Link state:

If you're not already registered for VAT, then to find out if you have to be registered, add your own VAT taxable turnover over the previous 12 months (if any) to that of the VAT-registered business you're taking over. If the total exceeds the registration threshold, you'll have to be registered for VAT from the day of the transfer.

Have Business Link, myself an specialist in the field and all those solicitors you mentioned got it wrong, or have you!

 

[David Griffiths]

I am not misinterpreting the rules. The link to the Business Link page that you gave is correct and says what I am saying.

and you are already VAT-registered or you need to be registered on the day of the transfer, you won't be charged VAT on the sale

You are clearly not going to be persuaded otherwise, no matter what evidence is put in front of you, so I am not going to bother.

 

[Rhodes100]

You need to be registered on the day of the transfer, therefore you are legally required to be registered on the day of transfer.

The OP asked whether he needs to be registered the answer is yes. Otherwise he will have to pay vat on the transfer

He will also be in serious trouble with Customs and Excise if when the vendor de-registers for vat they mention that they sold the assets of the business to him and Customs do not see his registration.

 

[Kevin Hall]

I would say simply this:

1. First establish whether a "Transfer of a Going Concern" (TOGC) has actually occurred. You might need specialist advice for this (whether from HMRC, or from an accountant, or perhaps the supplier can help).

2. If not, you are just buying goods as from any supplier.

3. If there is a TOGC, however, the compulsory TOGC rules kick in (as David rightly notes). There are then further copmlexlities to work out.

4. For example, is the supplier UK VAT registered? If so, they must charge UK VAT to you.

5. However, this UK VAT charge from the supplier is avoided if you are UK VAT registered. Only if you get this far would the above debate become relevant. But it is somewhat technical. Basically, if you take over a business which is so large that it needs to be VAT registered with immediately (or if you choose to register for VAT voluntarily), it might take a while to get this VAT registration number, but you can then provide it to the supplier who should then put you in a position so that no VAT is charged to you (whether that means issuing a VAT only credit note). This part might take some negotiating and some trust - not to mention some patience!

6. For you then, Mr Maycry, it is a question of whether your new assets constitute a "Going Concern" and (if so) whether that business is already required to be registered for UK VAT (or whether it might be advantageous to register for VAT voluntarily). For this, you might need specialist help.

As always, detail is vital. What sort of assets are you buying, what sort of values are involved, are you taking over the customer list of the previous business too, etc?