Purchase of business agreement.

Accounting treatment of purchase of the business

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Please help. I have new client who took over business from his friend and they have signed purchase of business agreement. According to agreement buyer gets all business equipment such as different tools, cleaning machines and business van. Cost is 20k+Vat and is payable monty over 36 months. WHat is correct accounting treatment? 

I am not very experienced and starting to create company in Sage. How would I account for this purchase? Do i need to list all equipment individually as assets, or do I create new suplier and post montly invoices there with code "machinery hire"?  Do I post all 20k or do I do invoice every month?

Can they claim any capital allowances until agreement completion? 

I am preparing first VAT return for this client using cash accounting. Do I claim VAT on payments for the purchase of the business donein this VAT period?

Any help greatly appreciated.

Replies (16)

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RLI
By lionofludesch
24th Jun 2019 09:56

Oh dear.

There's no VAT on the transfer of a business.

Tell us more if you think I've misinterpreted the facts presented.

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By Natalja Barnard
24th Jun 2019 10:21

:)
I got more clarity since last night..a lot of reading done:)
The client opened his own company and purchased all machinery and van from his friend who is closing his business. They both signed purchase of the business agreement, where price for equipment is set as 20K+VAT payable monthly over 36 months. I was just doubting if it is hire purchase but since there is no interest and ownership of van and tools is by new company I assume I treat is just as normal purchase?

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Replying to Natalja Barnard:
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By paul.benny
24th Jun 2019 10:28

As you say, it's not HP as title passes on day 1.

You should clarify whether it is purchase of business (out of scope for VAT) or purchase of assets (VAT due). If the latter, the tax point is the sale date, even though payments are deferred - meaning that seller and buyer should both account for the VAT on the sale date.

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Replying to paul.benny:
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By Natalja Barnard
24th Jun 2019 22:40

Thank you for rely. I do VAT for him on Cash Accounting Scheme method, therefore will account for 3 payments made towards this purchase.

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Replying to Natalja Barnard:
RLI
By lionofludesch
25th Jun 2019 09:25

Natalja Barnard wrote:

Thank you for rely. I do VAT for him on Cash Accounting Scheme method, therefore will account for 3 payments made towards this purchase.

First, you need to establish whether there is any VAT.

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RLI
By lionofludesch
24th Jun 2019 10:32

I'm not seeing anything that suggests that VAT should be charged.

If it's not chargeable, it's not recoverable as input tax either.

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Replying to lionofludesch:
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By paul.benny
24th Jun 2019 10:55

If the seller is just doing a closing down sale and it's not transfer of business as a going concern, then VAT would be due. The OP's question is slightly ambiguous, as possibly is the sale agreement. I suspect that the agreement was drafted by a someone with insufficient knowledge.

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Replying to paul.benny:
RLI
By lionofludesch
24th Jun 2019 11:03

It's hard to read "took over business" as anything but a going concern.

But I accept that the OP may not understand the issues.

Easybookz, eh ? It's never easy .....

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Replying to lionofludesch:
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By Natalja Barnard
24th Jun 2019 22:38

:) nothing is too complicated either when you are determined

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Replying to paul.benny:
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By Natalja Barnard
24th Jun 2019 22:45

I suspect they just downloaded template from the internet...And yes, seller doing closing down sale, selling all equipment. This is why I got so confused as agreement is called "purchase of the business".

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Replying to paul.benny:
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By Natalja Barnard
25th Jun 2019 09:42

I suspect they just downloaded template from the internet...And yes, seller doing closing down sale, selling all equipment. This is why I got so confused as agreement is called "purchase of the business".

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ALISK
By atleastisoundknowledgable...
25th Jun 2019 06:11

What is the business? This may give some context as to whether £20k of assets may be the business.

Is your client also now using the same name as the old business?

Do you know that the old ‘business’ was vat registered?

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Replying to atleastisoundknowledgable...:
RLI
By lionofludesch
25th Jun 2019 09:26

atleastisoundknowledgable... wrote:

Do you know that the old ‘business’ was vat registered?

Jeez - I hope so. The incomer is being charged VAT.

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Replying to atleastisoundknowledgable...:
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By Natalja Barnard
25th Jun 2019 10:25

Business is power wash industrial cleaning. Assets are all power jets and equipment plus van. No, client opened new LTD with different name and purchased assets from his friend who is closing his company as he retires. Seller's company is VAT registered.

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Replying to Natalja Barnard:
RLI
By lionofludesch
25th Jun 2019 11:40

Did the new company get the old company's customer list ?

Did the old company sell any assets to anyone else ?

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Replying to lionofludesch:
ALISK
By atleastisoundknowledgable...
25th Jun 2019 13:39

I’m leaning towards simple asset purchase with deferred payment plan.

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