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VAT on fixtures & fittings on business purchase

VAT on fixtures & fittings on business purchase

My client is in the process of buying a guest house.

The vendor is registered for VAT but my client at this stage does no wish to register.  He believes he may trade under the registration threshold and even if this proves not to be the case, he would like to bide his time on a decision as to register or otherwise.

Am I correct in my understanding that my client's non-VAT registered status means:

  • The fixtures and fittings within the sale agreement will be subject to VAT,  so he will pay in this case an extra £6,000 based on F&F of £30K.
  • Should he later have to (or choose to) register he will be able to claim this VAT back, assuming that registration takes place within 4 years of the purchase of the business.

Any clarification in respect of the above would be extremely gratefully received.

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By Ruddles
07th Mar 2016 12:38

First things first


I assume this will involve a TOGC - what is the vendor's turnover level?

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07th Mar 2016 12:44

The other thing, of course, is that the allocation of a separate amount to the fixtures and fittings is a crimson kipper for VAT purposes.

A building is being purchased. It happens to have fixtures and fittings in it. The latter is incidental to the former.

I agree though that the first consideration is determining whether your client will already have pre-existing turnover for registration purposes.

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07th Mar 2016 13:39

Voluntary

It's unlikely that a guest house would have registered voluntarily for VAT which, as both Ruddles and Portia imply, leaves the purchaser stuck with VAT registration whether he likes it or not.

Thanks (1)
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07th Mar 2016 15:00

Thanks all

The vendor's turnover is around £90K but is based on opening for almost the entire year.  My client is looking to have a little more time off and is convinced that he can run the business at just under the threshold.

Therefore presumably there is no obligation to register but he will have to swallow the cost of the VAT on the fixtures and fittings?

 

Thanks (1)
07th Mar 2016 15:01

You are not listening are you?

Thanks (3)
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07th Mar 2016 15:21

Perhaps you could enlighten

Portia, Perhaps you could enlighten me further?

I am simply trying to work my way through the various implications of this purchase and ensure the best deal for my client.

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07th Mar 2016 15:17

Another issue has arisen and

Another issue has arisen and that is the matter of goodwill.

As this is the sale and purchase of a business, then if my client does not register for VAT will VAT be chargeable on that goodwill?

 

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By Ruddles
07th Mar 2016 15:47

Still not listening. If client does not register then he'll have more to worry about than whether or not VAT is charged on goodwill (unless he is granted exemption from registration in advance).

Thanks (1)
07th Mar 2016 15:37

TOGC

If there is a transfer of a going concern, then the transferee is treated as having the past turnover of the transferor for registration purposes, if the transferor is (or should have been) registered.

As Ruddles suggests, your client may be able to apply for exception from registration if he can demonstrate that because he will not be open as much and/or will be charging less his turnover in the twelve months after transfer will be below the deregistration limit.

If he chooses to apply for such exception, then the special treatment on a TOGC where associated sale of assets is outside the scope of VAT will not apply.

VAT will be chargeable on the sale of all assets that are not exempt. On the assumption that the guest house premises are a dwelling house, the portion of the proceeds allocable to that (and the fixtures and fittings contained therein) will be exempt.

Thanks (1)
07th Mar 2016 17:02

Another way of putting it

You can't just not apply for registration.

You must say why the client won't reach the threshold of whatever it turns out to be after the Budget.

Effectively, you need to apply for deregistration on grounds of future turnover.

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