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Going Concern for VAT

Going Concern for VAT

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Hope everyone is enjoying the weekend.
Recently, we had a takeaway client who was prompted by HMRC to disclose his turnover and it became apparent that he was trading over the VAT threshold and subsequently HMRC backdated the VAT by 12 months and imposed a penalty.
The owner/director then realised that being VAT registered, he cant be profitable, so he has decided to surrender his lease and stop trading.  The surrender of the lease was a simple process since the freehold owner of the trading premise is his own father.
As such, with these businesses, there is always someone else who is happy to take over, so he managed to surrender the lease because he was able to get someone else to take it on, and his father is happy because rent is still coming in.
The problem is that the new company that has taken over have approached us to be their accountants as well; and we have told them that they need to register for VAT from day one - but they are arguing that the will wait till they exceed the threshold themselves, as they feel that they wont be as busy as the last incumbent as they will not be doing as much marketing as them.  The name of the takeaway hasn't changed, and there was only a week in between where the business was closed.

What should I do from a professional point of view with respect to the new clients willingness to register for VAT straight away, or does he have a point?


Replies (9)

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By WhichTyler
24th Aug 2019 12:27

Was the sale of the business structured as a transfer of going concern?

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By Accountant A
24th Aug 2019 13:33

You say "we have told them that they need to register for VAT from day one - but they are arguing".

If a prospective client is telling you your job before they even 'sign up', I would say they are one to avoid.

Obviously, WT offers a potential alternative analysis. The precise facts will be important.

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By the_drookit_dug
25th Aug 2019 00:57

I may be missing something, but the rules state:

"You must register for VAT if:

- you expect your VAT taxable turnover to be more than £85,000 in the next 30-day period
- your business had a VAT taxable turnover of more than £85,000 over the last 12 months"

As an aside, how are they going to make it work on lower trading levels if the previous owner couldn't?

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Replying to the_drookit_dug:
By Russell Huk
25th Aug 2019 13:24

your business had a VAT taxable turnover of more than £85,000 over the last 12 months"

Technically - the last 12 months wasn't "their" business.

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Replying to Russell Huk:
By Les Howard
26th Aug 2019 21:59

The last 12 months is treated as their business if the transfer was a TOGC.

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Replying to leshoward:
By the_drookit_dug
28th Aug 2019 16:46


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By mjshort
26th Aug 2019 07:08

I had a similar situation but in that case the previous business was registered after the transfer due to Hmrc investigation.
The new business had registered after hitting the Vat threshold.
HMRC then back-dated the new business' registration to day 1 of their trading. They added interest and penalties for not registering on time.
See Deezer case

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By Tom 7000
28th Aug 2019 13:16

they have to register unless they change it to a dry cleaners or a fishing tackle shop etc etc

Otherwise its just wrong....

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Replying to Tom 7000:
By djn
28th Aug 2019 13:30

They need to look at the previous owners turnover. If they were vat registered or should have been vat registered then your new client will need to be too.

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