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Client reaching VAT threshold, anti avoidance?

Client reaching VAT threshold, anti avoidance?

Evening all

One of my limited company clients (catering) is reaching the VAT threshold and, rather than registering for VAT, they want to set up newco and transfer the business across.  They are aware that this will only postpone the issue until the threshold is reached again but they are unlikely to still be trading at that point (due to other reasons).

I'm sure there must be anti avoidance on this but I have searched and not found anything (so far).  Can any of you good people shine some light on this please?

Thank you

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23rd Feb 2016 10:06

Section 3.8 of VAT notice 700/1 appears fully to answer your question

 

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23rd Feb 2016 10:24

Section 3.8

only applies where the business being taken over is registered or liable to be registered.  It doesn't apply where the business is below the registration threshold so not liable.

Provided that is the case then the new business does not appear to have to look at turnover of its predecessor in considering registration

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23rd Feb 2016 10:29

Thank you Bernard

Thanks for that reference, the client is currently neither registered nor required to be registered for VAT.  They are planning to transfer to Newco before any requirement to register takes place.

It's a bit like incorporating a sole trader when they almost reach the VAT registration limit to take advantage of an additional £82k in sales before compulsory registration.

 

Edit: overlapped with Cloudcounter's response (thank you Cloudcounter)

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23rd Feb 2016 10:45

I assume that "reaching VAT

I assume that "reaching VAT threshold" was actually on it. It is right that 3.8 appears not to have an effect if not actually liable for registration However I don't think HMRC would agree in these circumstances and the OP client's could have a nasty fight on their hands. Particularly if the catering business involves cash transactions they may be subject to a full tax investigation

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By JimFerd
23rd Feb 2016 10:51

I'd expect that OldCo and NewCo will probably both be wound up before HMRC even notices.

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23rd Feb 2016 11:03

With FutureCo then trading

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By JimFerd
23rd Feb 2016 11:13

Quite possibly, but he said that they are "unlikely" to continue trading. I'd be inclined to agree with your scepticism though!

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23rd Feb 2016 11:19

is claiming exception

for temporarily exceeding threshold an option?  (not sure of the exact circumstances the Revenue will grant exception....but could this be one of them?)

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29th Feb 2016 12:19

Thanks all

Thank you all for your comments, the client is currently renting the area it trades from on an informal basis as the whole property is up for sale so it is unlikely that they will continue too far into the future.  Client is aware that they will reach the VAT threshold in the next few months and is, therefore, trying to sort this out before the requirement to register arrives. 

I have had a look at the exception for temporarily exceeding the threshold, thanks justsotax.  I will need to speak to the client to get the projected figures for the future.

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