VAT Considerations when Selling a Business

1) Is the sale a transfer of a going concern (“TOGC”)? This is the key question and if so, the sale is not seen as a supply for VAT purposes so no VAT is chargeable. To qualify as a TOGC all of the following conditions must be met

• The assets are to be used by the purchaser in carrying on the same kind of business
•  If the seller is VAT registered, the purchaser must be or become VAT registered
• If the sale is of part of a business, the part transferred must be capable of separate operation
• The effect of the transfer must be to put the purchaser in possession of a business which can be operated as such
• The business must be a going concern at the time of the transfer
• There must not be an immediately consecutive series of transfers
• No significant break in trading

In addition, if the sale involves property assets which have been opted to tax, the following conditions must also be met

• The purchaser must have opted to tax and notified this to HMRC prior to date of transfer
• The purchaser must have notified the seller that their option is not disapplied. This is a complex area of legislation which could be relevant in cases where the purchaser is not fully taxable for VAT

Appropriate indemnities will need to be included within contracts to reflect the above and protect the seller’s position in the event of any challenge from HMRC

2) Land & Property Assets - Particular care needs to be taken to identify the VAT treatment of any land and property assets to be sold/surrendered etc. e.g. have any been opted to tax or compulsorily standard rated.

3) Deregistration for VAT - Issues here could include

• Make sure all VAT claims and reliefs have been finalised
• Appropriate date of deregistration – HMRC can agree to defer for 6 months
• Accounting for VAT on assets put to personal use or deemed supplies at time of deregistration
• Use of VAT 427 procedure to reclaim any input tax after deregistration

Please contact Julie Rawlinson-Smith with any queries or concerns julie.rawlinsonsmith@centurionvat.com or 07805 134091