Seem to recall anti avoidance with TOGC of property but...

Seem to recall anti avoidance with TOGC of...

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Client selling opted property with a rent of £70k + VAT  to buyer who is opting and giving the usual assurances etc prior to completion for TOGC. The buyer however is not yet VAT registered and I thought I'd seen some anti avoidance somewhere that if the rent from the property subject to the TOGC is under the VAT threshold then the buyer MUST also be VAT registered at completion or when funds change hands if sooner. The buyers advisors are saying not however and that its OK for their registration to be processed post completion. Checked the usual sources but cannot see anything so maybe I dreamt it ??

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By spidersong
01st Apr 2016 11:37

Isn't it just the law?

TOGC for VAT is largely governed by the VAT (Special Provisions) Order 1995 (SI1995/1268). Article 5 is where you'd be looking and 5 (a) (ii) says that to be a TOGC the "transferee is already, or immediately becomes as a result of the transfer, a taxable person".

VAT Act 1994 3 (1) says "a person is a taxable person...while he is, or is required to be, registered".

So is the transferee already registered - no.

When the transfer takes place will they become liable to register - if historic and future turnover aren't exceeding either of the limits then...No.

So no TOGC if not registered at time of transfer.

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Quack
By Constantly Confused
01st Apr 2016 11:43

Assuming the seller is VAT registered

You need to consider 2.3.4 of VAT Notice 700/9

2.3.4 VAT registration

Where the seller of the business or part of the business is registered for VAT, the purchaser must be registered or at the date of the transfer be required to be registered for VAT because all of the conditions for compulsory registration are met, or have been accepted for voluntary registration. This condition is not met if the purchaser is not registered and is not required to be registered for VAT. This could be either because:

(a) at the date the transfer takes place, the purchaser does not expect the value of their taxable supplies in the next 12 months to be above the deregistration limit, for example the purchaser intends to reduce trading by introducing shorter working hours; or

(b) the seller was not required to be registered but was registered voluntarily at the date of the transfer. Thus, at that date, the purchaser is not required to register because the value of their taxable supplies in the 12 month period then ended is not above the registration limit.

In such circumstances, unless the purchaser has been accepted for voluntary registration, the conditions for the transfer to be treated as a TOGC are not met and the sale takes its normal liability. Where only part of the business is being transferred, the purchaser must look at the turnover of this part to determine whether he must be registered. Further details about registration can be found in ‘Notice 700/1 Should I be registered for VAT?’ The supplement to ‘Notice 700/1 Should I be registered for VAT?’ gives details of registration limits.

 

#Spidersong beat me to it with his far superior answer :) #

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