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
Replies (11)
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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.
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.
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
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
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
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
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