VAT Issues

If you decide to buy an already existing small business it is useful to be aware of some of the VAT issues involved. Overlooking the importance of VAT will at best result in delays closing the deal and at worst could cost you a lot of money. Of course, you should always consult a specialist accountant if you have any detailed queries, but it can be helpful to know about the big issues:

  • If you are buying a business in the hotel trade, education, financial services, charity or property industry you will be subject to specific VAT rules – so consult you accountant
  • Usually VAT consideration comes down to two options – a transfer of a business as a going concern (TOGC) or an asset sale
  • A TOGC is outside the scale of VAT. To qualify, a transfer must meet all these conditions:
  1. The new owner must be in possession of a business that can be operated as such
  2. The business (or part of it) must be a going concern at the time of transfer
  3. The assets transferred must be intended for use in the same kind of business
  4. There must not be a series of consecutive transfers of the business
  5. If the seller is registered for VAT the buyer must also be registered, either because all the conditions for compulsory registration are met, or accepted for voluntary registration
  6. There must be no significant break in trading right before or after the transfer
  7. If only a part of the business is being transferred, it must be able to operate separately as a standalone business
  • If the business does not meet these conditions it is likely to be classed as an asset sale and VAT will be charged
  • Any land or property included in the transfer will need investigation, as although they are exempt by default there are exceptions (such as if the owner has chosen to tax their interest in them). Make sure this is investigated and sorted out before the deal is completed as you will be stuck with a larger tax bill otherwise

Hat-tip to Robert Moore from Business Data International Limited

comments powered by Disqus
WinWeb Business Cloud - Creating Financially Sustainable Businesses