Friday 15th August 2008 Blog

Selling a Business – the VAT Implications

Although a complex area normally dealt with by your clients Chartered Accountant, it is useful to understand the VAT implications when a business is sold.
 
When your client sells the shares in their own company there are few VAT implications. The VAT registration will normally go with the company, as it is the company that is VAT registered not your client as the owner of that company. If they are a director of the company they will want to resign, tell Companies House and tell the HMRC VAT office that they are no longer a director.

Where they sell the assets and trade of their business, either out of their company or as a sole trader or partnership business, the transfer may qualify as a transfer of a going concern (TOGC). If TOGC applies they don't charge VAT on the transfer of the assets. The conditions for a TOGC to apply for VAT purposes are:

- the entire business is transferred as a going concern;
- if only a part of a business is being sold, that part must be capable of separate operation; and
- the purchaser must use the assets in the same kind of business, which may be as part of an existing business; and
- the purchaser should already be VAT registered, or becomes VAT registered as a consequence of acquiring the business.

Your clients business need not be profitable at the time of transfer. The TOGC treatment can apply to a trading business sold on by a liquidator or by an administrative receiver.

If the conditions for TOGC are not met and they are VAT registered, they must charge VAT on the sale of each of the assets. It is worth keeping in mind that certain types of real property will be zero-rated or exempt from VAT.

Posted by: Bookcert Mentoring Team

Friday 15th August 2008

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