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Implications of change of ownership, VAT debt?

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Last year I took on a sole trader client. He already had a VAT inquiry as he should have previously registered. Head in the sand type and no previous agent.

The Inquiry has raised a VAT debt of circa £15K plus penalties (no scope for reducing, all correct) plus he hasn't paid any of the VAT quarters I've subsequently calculated.

The business, while profitable, certainly doesn't give a living income and tax credits are claimed. When it gets to the point of HMRC enforcing the debt, he would end up being bankrupt. In view of the debt and business conditions, he has now taken employment elsewhere (to start 1st March)

His father, who did work for him, wants to carry on the business albeit under a new name. Running it by himself (and with a clear head) he would be more successful in his view. He would have solicitors draw up an agreement to transfer the assets.

What are the implications to the original owner? I don't see how the debt is written off just because he ceases trading??

With regards to the new owner, I assume he cannot be chased for anything?

 

Replies (10)

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By Tax Dragon
27th Feb 2020 13:54

You say solicitors will be engaged; can't they advise on the legal matters?

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By Rammstein1
27th Feb 2020 14:18

If the solicitors are transferring the assets, what is happening with the VAT liability?

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Replying to Rammstein1:
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By AWeb72
27th Feb 2020 14:54

The father wanted to transfer just the equipment and start afresh on his own

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Replying to AWeb72:
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By Tax Dragon
27th Feb 2020 14:59

I hope son is taking advice too.

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Replying to AWeb72:
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By Rammstein1
27th Feb 2020 15:07

So the VAT liability is remaining with the son. This isn't a limited company where he can walk away from it.

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RLI
By lionofludesch
27th Feb 2020 16:02

Agree with all that.

Is the father paying enough for the assets for the son to pay his VAT debt off?

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RLI
By lionofludesch
28th Feb 2020 06:50

Just thinking ahead to the father's business - is he intending to register? Or will his turnover drop below the threshold?

If he doesn't register, don't forget to charge VAT on the transfer of the assets.

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By AWeb72
28th Feb 2020 11:11

Thank you for the replies. I will be advising them both to consult solicitors about the entire matter, not just the transfer of assets.

I don't think the father will be paying enough to pay off the VAT debt, from the sounds of it, he has already been the Bank of Mum & Dad for long enough as it is!

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Hallerud at Easter
By DJKL
28th Feb 2020 11:36

Re father who "did work for him", is there any risk HMRC might consider that within previous business Father, by his actions, might be held out to be a partner?

A look at father's previous role /actions etc is possibly worth considering, especially if HMRC are going to get stiffed for the vat, whilst the chance of an issue is very slim it certainly ought to be considered, even if only to confirm not an issue.

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Replying to DJKL:
RLI
By lionofludesch
28th Feb 2020 11:49

DJKL wrote:

Re father who "did work for him", is there any risk HMRC might consider that within previous business Father, by his actions, might be held out to be a partner?

How was he paid ?

That's the critical question.

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