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Business Purchased as Going Concern Corporation Tax Liabilty

Please can someone help I have tried searching the internet but cannot get a definitive answer.

I am currently trying to enter all book keeping entries for a business that I think was bought/ transferred as a going concern as the Vat has been transferred to the new owner for her end of year. The new owner did not keep very good records and this is the first time I have come accross a business that has been bought out by a in one accounting period. The business incorporated 7.3.11 and was sold 1.10.11.  Should I be entering information from 7.3.11 or 1.10.11??

i have only been entering from 01.10.11, is this correct? There is only partial records from the previous owner, what happens to the previous accounting records, should the seller have provided. I have a few bank statements that was being used by both owners for 2 months but no information on some transactions as there is no paperwork.  Does the business start on 01.10.11 with or without opening balances, if so where do I get the information from, or does it start from 7.3.11 and the seller should of given all accounting records.

Is the new owner liable for corporation tax on the full income/expenditure from 7.3.11 or only from her take over on 1.10.11??

A speedy response would be really great

Thanks

Tara

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By bobhurn
07th Jul 2012 12:09

What did your cleint buy?

From your comments it appears that your clients have purchased the company's shares? If so the company has continued uninterrupted and you should account from the date of incorporation.  A change of shareholders does not affect the continuity of a company.  The company is responsible for corporation tax for the whole period, effectively the new owners will bear the cost of CT for the whole period (in that it will be paid from a company owned by them) .  Hopefully they allowed for this when deciding on their offer price for the shares.

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07th Jul 2012 13:32

Thanks for you response,  I

Thanks for you response,  I am not entirely sure that the business has been purchased as a going concern as I have just accessed the Hmrc Vat submitted returns and it says on there I would not beable to access returns prior to the transfer of going concern and yet I can access the first vat return done by the previous owner??  Where does that leave things is the answer to my question still the same?? Also how do I get access to the paperwork that the previous owner generated?? Do I just ask them and are they obliged to provide the paperwork?

My client did not really know what she was doing when she bought the business and I do not think any due diligence was carried out by her at all and I am struggling to give her any good news as she never seems to have any cash in the business and is constantly putting her own cash in the business to pay for the hefty Vat bills and she has another due in a month!

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By bobhurn
07th Jul 2012 14:18

I think the best route forward would be to write to HMRC asking for copies of the missing VAT returns or a schedule of data.  And ask your client to request any missing bank statements from the date of incorporation from the bank.  On receipt of these you will have to proceed on the basis of incomplete records.

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08th Jul 2012 12:38

She is trying to get the bank statements from the bank, but previously they were not helpful as they said she was not a signatory on the account.  She has since opened up a new account an closed the orignal account.  I am presuming that as along as she can provide ownership of the company (ie shares in her name) this will be possible and the bank will have to provide them?

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By occca
07th Jul 2012 20:58

Sale contract?

It sounds like the client purchased the shares in the company in which case they are responsible for everything

There should have been no transfer of VAT number if the limited company continued, there was just a change in shareholders and directors

 

 

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08th Jul 2012 08:49

Share Value & P35

If she bought shares in the business for a fair amount of money, how come her share value showing on companies house is only £1, how should this be reflected in her accounts?? I have the whole balance down as purchasing equipment, fixtures and fittings?

She was rather upset when I told her she was liable for everything, including a remaining balance of paye she tried to argue with Hmrc saying it was prior to her take-over. She is now trying to locate anything paperwork regarding the purchase, as I do not believe she bought it knowing all of the facts and I do not know where she stands legally?

 

I have also accessed her P35 which she filed but I do not think she has inputted any individual P14 and only did the summary.  HMRC has acknowledged this so do I need to amend the P35 online or are the summary details enough?

Sorry about the constant questions but this is a learning curve for me, and I would at least like to get her on the straight and narrow so she understands better in the future.

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By occca
08th Jul 2012 08:56

P35

You need to submit an amendment with all the details on for the whole financial year

 

It sounds like she didn't take proper advice regarding the purchase, and has been stitched up, but if she signed contracts, etc there is very little she can do

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08th Jul 2012 11:57

Advise your client to see a solicitor

I suggest that you advise the client to see a solicitor for legal advice (which you are in no position to give).

IF (a big if) the client when purchasing the shares relied on information supplied by the seller and IF that information was wrong or misleading then the client MIGHT have good grounds for a legal claim against the seller.

That might involve a claim for compensation from the seller or a claim to reverse the entire share purchase to put both parties back to where they were before it happened.  However it rapidly becomes increasingly difficult to reverse the whole transaction as your client does things with the company (like paying bills, ordering goods, making sales, etc) because your client becomes incapable of returning the company in the state in which she received it.

So it would be best to get legal advice quickly.

Once reversing the entire purchase has become impossible the only remaining avenue for legal action is a claim for compensation.

Even if you think it is unlikely that a legal claim would succeed (for example because the seller provided information orally which was not confirmed in writing) I would still suggest you advise the client to see a solicitor.  This is partly for your own protection as, who knows, some years down the line your client may meet an 'expert' in the pub who tells her to sue you because you did not advise her to see a solicitor when you were consulted!

If the client receives your advice (which I suggest you confirm in writing to her) and decides not to see a solicitor then that is her decision (and you are in the clear).

David

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08th Jul 2012 12:42

Legal Advice

davidwinch wrote:

I suggest that you advise the client to see a solicitor for legal advice (which you are in no position to give).

IF (a big if) the client when purchasing the shares relied on information supplied by the seller and IF that information was wrong or misleading then the client MIGHT have good grounds for a legal claim against the seller.

That might involve a claim for compensation from the seller or a claim to reverse the entire share purchase to put both parties back to where they were before it happened.  However it rapidly becomes increasingly difficult to reverse the whole transaction as your client does things with the company (like paying bills, ordering goods, making sales, etc) because your client becomes incapable of returning the company in the state in which she received it.

So it would be best to get legal advice quickly.

Once reversing the entire purchase has become impossible the only remaining avenue for legal action is a claim for compensation.

Even if you think it is unlikely that a legal claim would succeed (for example because the seller provided information orally which was not confirmed in writing) I would still suggest you advise the client to see a solicitor.  This is partly for your own protection as, who knows, some years down the line your client may meet an 'expert' in the pub who tells her to sue you because you did not advise her to see a solicitor when you were consulted!

If the client receives your advice (which I suggest you confirm in writing to her) and decides not to see a solicitor then that is her decision (and you are in the clear).

David

 

I will definitely do this, with the information I have seen at the moment it would appear that she may of had misleading information and should seek legal advice just for peace of mind if nothing else.

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08th Jul 2012 11:43

Money paid for the shares

The money your client paid for shares in the company is a transaction between herself and the person who sold the shares.

It is not a transaction involving the company and does not go through the company's accounts (i.e. it does not affect the company trial balance, balance sheet or profit & loss account).

Your client has purchased shares and nothing else (i.e. not equipment, fixtures & fittings, stock, etc).

The company's share capital in the Balance Sheet is unaffected by the transfer of those shares (or that share) from the seller to your client.

David

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08th Jul 2012 15:17

A case I dealt with

I dealt with a case some years ago in which a man had purchased 50% of the shares in a company for £30,000 after having been told by the owner (who had held 100% of the shares prior to that sale) that the company "had assets of £70,000".  The company operated a small shop selling DIY goods.

Although it was strictly correct that the company had assets of £70,000, the seller had failed to mention that the company also had liabilities of £110,000 - so overall it had net liabilities of £40,000.

Also the buyer had thought that his share purchase would provide additional working capital for the company to purchase additional stock.  In fact of course his £30,000 went straight into the pocket of the owner who had sold the shares and did not benefit the company at all.  (The purchaser was buying shares from the owner - the company was not issuing additional share capital.)

The company went bust shortly afterwards and the purchaser sued the seller.

When the matter came to court the purchaser's claim failed because (i) he had not promptly made every attempt to reverse the transaction when he discovered the company's true position (and in particular he had not attempted to transfer the shares back to the seller) and (ii) he had never asked to see any accounts of the business before buying the shares and so it appeared that he had not actually relied on the (misleading) statement about the company's assets when deciding to purchase the shares (it appeared that he thought the seller was a good businessman and he thought the two of them working together would be a recipe for a successful small business).

The buyer had not taken any professional advice before buying the shares.

Hopefully the moral of this tale is obvious!

David

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