A brother and sister have been trading in partnership for several years until the sister recently decided to sell her 50% share in the business to her brother, who continues as a sole trader.
TOGC rules do not apply ( that's another story altogether! ) so HMRC require a VAT only invoice to be issued to the partners.
The doubt in my mind is that the transaction is actually only the sale by the sister of her half; the brother is not required to sell himself what he already owns, let alone pay himself anything.
So, are HMRC correct in viewing this as a sale by the partnership of the entire asset and requiring a 100% invoice?
The solicitor acting for the Clients tells me that he believes the basis of the sale is only for the sister's half and that he feels a completion statement to reflect only her 50% share is all that he needs to prepare.
Is he wrong, or is this one of these occasions where tax law and commercial law view things differently?
My concern is the size of the VAT only invoice and the potential penalties.
Many thanks to anyone leaving a comment.
Replies (7)
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You say "VAT only invoice to
You say "VAT only invoice to be issued to the partners". Do you mean by the partners? If not, who do HMRC say the invoice should be issued by. If you mean to, presumably the invoice is to be addressed to the brother as a sole trader (?).
Is the point perhaps that HMRC are saying that for VAT purposes the partnership is disposing of the whole business to the brother? Whether that's right as a matter of VAT law I won't comment on. But is there any particular problem if the brother is able to recover the input VAT.
sale of partnership share
John is right about the brother being able to recover input tax.
On the subject of penalties: if a 'reasonable excuse' defence does not work, then 'special circumstances' should. In the situation you describe, no penalty should apply.
I am also concerned about the principle and the quantum of any assessment. Let me, or other VAT specialist, look at the correspondence, and comment on it.
I think you need proper specialist advice. If you want recommendations you may get some if you indicate where you are based.
Has the sole trader retained the VAT number
If the VAT number has transferred to the sole trader, I would suggest that a in invoice is rather daft in these circumstances.