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Non-VAT registered sole trader transferring to Limited company, does the limited company need to consider the sole trader turnover for VAT purposes

Non-VAT registered sole trader transferring to...

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I have a client who recently de-registered for VAT and was happily heading towards retirement.

Two months later, he has advised that his services are back in demand and he could do £160,000 of sales in the next 12 months and he is worried about his VAT position.

I have two queries as follows:

1.) Presumably he does not need to re-register for VAT until his turnover goes over £83,000 in a rolling 12 month period. The turnover for the last few months before de-registering was only a few thousand, hence the de-registration.

2.) If he has say £80,000 of turnover in the sole trader business and then the balance in a newly formed limited company. Does his turnover in the previous business need to be considered for the company VAT position even though the sole trader business was not VAT registered at the time of the transfer to the limited company.

Any advise would be greatly appreciated as I have found this point difficult to research.



Replies (3)

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By levelheaded1903
17th Apr 2016 17:18

Point 1
Will follow the future turnover test, Ie registration if there are reasonable grounds to believe that taxable supplies excl vat will exceed the vat registration limit in the following 30 days, you are required to notify hmrc by the end of that 30 day period and they will then register with effect from the start of that 30 day period, . So, as you say, keeping a check on the rolling turnover total. When he de registered as you say, he did not believe that his turnover would exceed the de registration limit at that time, so I cannot see any problem there,.
Point 2, will be a transfer of a going concern, and will depend on when the transfer takes place as to the treatment. If the transfer took place when the sole trade business was not liable to register because trading below the historic limit, then, you start counting up to the registration limit from the "purchase" date, TOGC does not require the previous turnover to be taken into account. If he waited however, and was not registered and trading went above the limit, you would need to register the ltd company before the transfer took place.hope that helps, not a vat specialist by the way, but hopefully any other poster will correspond with my comments.

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By Les Howard
18th Apr 2016 08:36

Sole trader to limited company

This is my blog on the issue: - with some comments.

Your Q2 does concern me. If he deliberately runs his turnover up to the registration threshold, and then changes to a limited company, that may be considered an abuse of the rules.

But, the key comment is that a TOGC cannot apply where sole trader is not a taxable person.

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By michael2012
19th Apr 2016 11:53

Thank you both for your comments.

In terms of the potential issue with Q2, I accept its a fine line but if the rules/law has been complied with I am ok with this. Plus the business does have additional commercial reasons for incorporating i.e. retirement planning and potential new owners who would rather buy a limited company than a sole trader business.

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