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.
Replies (10)
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First things first
I assume this will involve a TOGC - what is the vendor's turnover level?
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.
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.
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).
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.
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.