Transfer of going concern

Transfer of going concern

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On preparing to sell my business I received information from my accountant that the sale falls within the scope of the transfer of a going concern and was exempt from VAT.

The buyer and I were both unaware that the conditions stipulated that the buyer must be VAT registered at the date when the sale completed. The accountant at the time of advising me presumed that the buyer would be VAT registered.

Since then the accountant has independently contacted the buyer and advised them if they are not VAT registered at the date of transfer then VAT will be chargeable and his client (me) shall raise a VAT invoice in accordance with this.

The buyer has sufficient time to register for VAT before the transfer takes place but has indicated that they will intend not to do so. This would then allow the business to me the TOGC conditions and therefore no VAT charges will be applied. 

My question is - who is liable, if any?

The accountant claims that even though he provided incorrect advise originally he has now provided corrective advice and as it was at the time the agreement has not completed.

The buyer is claiming that they are not liable for any VAT charged even if they chose not to register at the agreement date.

Myself - am I? I sought professional advice and which was given incorrectly at first has now been given correctly. The agreement states the price of the sale of the business £xxxx (excluding VAT).

My further question is - Where do I go from here?

Currently I havent issued an invoice of any nature; it would be due at the end of the month in line with the agreement date.

Do I send an invoice with no VAT and say.............................................

Sale of payroll goodwill, under the 'transfer of a going concern' - this transactions is VAT exempt providing all conditions are met.

Should any conditions stipulated by HMRC regarding 'TOGC' not be met the liability of VAT fall with the buyer, the buyer must also advise the seller that the conditions have not been met.

What happens if the buyer fails to advise me if they have not registered for VAT and I havent issues an invoice - who would be liable?

Any thoughts, suggestions or advice in the matter would be gratefully received. The completion is imminent (31st May 2011) which is when I am due to be on holiday so am eager to get this matter resolved as soon as possible.

Replies (5)

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By PUREaccountants
30th May 2011 07:52

HMRC Guidance
Their website has some sound advice. Check out paragraphs 1.2 and 2.3 as these clearly state when VAT is chargeable or not.

If your business is currently VAT registered why does the purchaser believe that they will be non-vat registered.

If you are VAT registered then in order to qualify for TOGC, the purchaser must also be VAT registered.

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.por...

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By PennyC
30th May 2011 08:18

Requirements

A TOGC is a question of fact - it either is or is not. The question, as indicated in the post above, is whether the purchaser is required to register as a result of the seller's turnover history. If he is required to register, then there is a VAT-free TOGC. If on the other hand the seller was voluntary registered, no obligation for the purchaser to register, so VAT chargeable. This could also apply if the seller was compulsorily registered but the purchaser believed that his own supplies over the next 12 months would be below the deregistration limit.

The big question is - who drafted the sale agreement? It is pretty standard to include in such contracts a clause that provides that while both parties consider the transaction to be a VAT-free TOGC, should it prove that it is not, the vendor is entitled to raise a further invoice for the VAT. Saves a lot of trouble!

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By honorpacey
30th May 2011 08:42

Response to reply re. TOGC
Thank you for your reply.

No mention of togc is in the agreement, the purchase price is stating and in brackets states that is excluding Vat.

I to have the agreement to hand and would welcome you opinion - can I email it directly to you please?

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By MBK
31st May 2011 12:47

As Penny says ....

.. the key point is not whether the buyer is VAT registered before the transfer, it is whether they are liable to become VAT registered as a result of the transfer. They take on your turnover history, so if your turnover in the last 12 months is over the registration threshhold then (provided the other conditions for a TOGC are met) the buyer is liable to be registered and no VAT is chargeable by you on the transfer.

If the buyer does not register in such circumstances that is not your problem.

So, actually, it's quite simple. If your turnover in the last 12 months is over the registration llimit = no VAT. If it is under then no VAT only if you have evidence that the buyer has registered.

 

 

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Euan's picture
By Euan MacLennan
31st May 2011 13:31

Purchase price

I agree with Penny & MBK.

Incidentally, if the sale agreement states that the purchase price "is £x (excluding VAT)", it is not specifying that VAT will not be charged.  It is merely saying that if VAT is charged, it will be calculated on and added to £x.

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