Transfer of Business as a Going Concern and VAT

Is it necessary to charge VAT on Sale Proceeds under these circumstances?

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My VAT-registered client (turnover 130,000 - 150,000 pa) is selling his business to a non-VAT registered purchaser.

To be treated as a "Transfer as a Going Concern" (TOGC), and to not charge VAT on the purchase price/sale proceeds (Equipment etc and Goodwill), the purchaser should normally be required to be registered for VAT or intend to register.  In this case, the purchaser happens to be an Educational/School Trust, with a turnover of tens of millions of pounds, and whose income is "outside the scope of VAT", and intends to incorporate/integrate my client's business under that same umbrella.

In these particular circumstances, are there grounds for treating the sale as a TOCG - more to the point, for my client not to have to account for VAT on the sale proceeds?

Replies (5)

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By shaun king
12th Feb 2017 21:37

Well either it is a TOGC with no VAT chargeable or it isn't and VAT is chargeable!!

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By Accountant A
12th Feb 2017 23:06

Does the status of the trust or its activities make income that is VATable for your client not VATable for the trust? I always thought that you looked at the activity as the starting point. The trust's current income may be outside the scope of VAT but does that mean the new activities are?

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Replying to Accountant A:
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By songb1rd
12th Feb 2017 23:30

To Accountant A:
Since negotiations commenced several months ago, I have contended that the Trust should register for VAT, or at least that my client's activities should be VAT-registered. I have emailed copies of the relevant legislation/VAT pamphlets to the Assistant Bursar, and stressed the point to my client on several occasions, but the Trust still insists, on the advice of their accountants (their in-house accountants, I'd suppose...) that the new activities would/can be "fitted in" with their educational activities. You could say that they refuse to register for VAT.

My client fears that, were he to charge VAT on the agreed sales price, which would be irrecoverable by the purchaser, this may well scupper the deal.

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Replying to songb1rd:
By Ruddles
12th Feb 2017 23:56

Your client doesn't have much of a choice. If the transferee insists that they don't need to register, they need to accept that it will be a taxable supply.

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By Portia Nina Levin
13th Feb 2017 09:37

"Charging VAT" involves accounting to HMRC for 1/6th of the consideration. It does not necessarily involve adding VAT on top.

If the purchaser does not wish to register for VAT, and will not put up with an increase in price, then your client needs to consider whether 5/6ths of what the vendor is willing to pay is sufficient a price.

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