VAT on pub premises and going concern

VAT on pub premises and going concern

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We have a client who is buying pub premises, and the seller is operating as a pub at the moment.

As far as everyone is aware there is not an Option to Tax on the building.

Our client is not going to operate it as a pub. The pub will close and he will refurbish the premises into separate business units (office units and a public house unit) and then will be renting out the public house unit (not operating it himself).

The selling solicitor has entered £1 goodwill and £xxxx value on fixtures in the sale document and is saying it is a sale as a going concern and that VAT will have to be charged if my client does not get VAT registered (he isn’t).

Is the solicitor correct? If so what way around this is there? Could the seller close the pub a few days before completion so that it isn't a going concern?

Advice welcome. Thanks.

Replies (9)

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By User deleted
01st Feb 2013 11:45

If your client does not register for VAT ...

... on what is the seller suggesting VAT will be charged?

And I know that many pubs are struggling at the moment, but placing a value of £1 on goodwill is hardly indicative of a transfer of a going concern.

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chips_at_mattersey
By Les Howard
01st Feb 2013 12:38

not TOGC

The sale will not be a TOGC if the purchaser is not going to operate the same type of business as the seller. The sale will therefore be exempt for the building (no option to tax), plus value for goodwill.

The next question is whether the purchaser will register for VAT, to recover VAT on refurb costs and legal fees, etc.

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Glenn Martin
By Glenn Martin
01st Feb 2013 14:00

Careful of the option to tax

Are you sure there is no option to tax and confirmed this with HMRC. As these could be in place from years ago.

This can come back and bite you in the future if not dealt with now.

what is the history of the site had is ever been owned by national PubCo's Punch Taverns or Enterprise Inns as they always put an option on the property.

The option to tax unit is in Glasgow i think.

 

 

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chips_at_mattersey
By Les Howard
01st Feb 2013 14:25

TOGC

if there is an option (as per the previous post), then the supply is vatable, and still cannot be a TOGC; the purchaser will probably choose to opt to tax, so as to recover the input tax.

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By paulwakefield1
01st Feb 2013 15:52

If it's VATable then

watch out for the Stamp Duty which will go up.

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By User deleted
01st Feb 2013 17:23

Confirmation

HMRC will not confirm that there is no option. At best they will confirm that they have no record of one, which isn't the same.

If the seller has confirmed that there is no option, then I would resist the temptation of the seller's solicitor to include a clause that would allow the seller to charge VAT later. So that if it is subsequently established that an option was in place, the problem rests with the seller.

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By shaun king
01st Feb 2013 19:15

Make sure everything is in Warranties & Indemnities re No Option to Tax - sale proceeds deemed to include any VAT chargeable if an Exempt supply etc

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By The VAT Doctor
02nd Feb 2013 18:38

TOGC turnover

If this was a going concern, and the pub was turning over more than £77k, your client would HAVE to register, as the law is set out to include TOGC's where the buyer is registered, OR LIABLE TO REGISTER.

Can't recall a single issue that confuses many solicitors more than this.

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By shaun king
02nd Feb 2013 20:22

But it isn't a TOGC!!!

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