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VAT Registration

VAT Registration

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We have a sole trader whose turnover was such in the previous 12 month period that he was on the verge of having to register for VAT.

He then opened a new Ltd company and transferred his sole trader business to this. Does the 12 month turnover period start again with the Ltd company or should he register for VAT from day one, based on his turnover as a sole trader?

Thank you for any input or opinions on this as HMRC guidance does not make this clear.

Replies (49)

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chips_at_mattersey
By Les Howard
06th Oct 2014 16:56

VAT Registration and TOGC?

This is one of those perennial VAT questions, where the guidance is, as you rightly state, non-existent. Since there can be no TOGC (transfer of a business as a going concern), the Sole Trader supplies are ignored by the company.

(I am working on a blog post on this issue, which should be available later this month.)

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RLI
By lionofludesch
06th Oct 2014 17:09

Well put

Les has exactly the correct reasoning.

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By geroge
06th Oct 2014 19:43

Why do you say there can be no TOGC in this case?

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By shaun king
06th Oct 2014 22:47

TOGC

It can only be a TOGC if the vendor is already registered for VAT. If the vendor isn't registered, then New Co, as Les says above, starts a new 12 month period for VAT registration purposes.

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By The VAT Doctor
06th Oct 2014 23:29

Mischeavous

Presumably it would be possible to set up a new legal entity just before any threshold is breached and start off again with a new £81k threshold?  A but like my personal tactic of switching car insurance between my wife and I to get a lower premium.

I would be concerned that HMRC would be able to demonstrate that the supplies were in fact still being made by the original legal entity.  Maybe you could get away with this once, if you could demonstrate that the timing was coincidental.

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Stepurhan
By stepurhan
07th Oct 2014 08:08

TOGC or not TOGC

I think there is demonstrably a transfer of going concern. A going concern previously run as an individual is being transferred to a company. Whether that qualifies as a Transfer Of Going Concern is indeed a question with a lot of missing guidance. But as The VAT Doctor says, if this situation resets the clock, you could avoid registering for VAT forever by switching entities whenever the threshold approached. Is that really a legitimate strategy, because it seems nonsensical. (I know, VAT law is sometimes nonsensical, but is it in this case?)

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By shaun king
07th Oct 2014 08:18

how can it be?
The concept of a TOGC is covered by the VAT legislation and specifically says that the vendor must be registered for VAT for it to be a TOGC. So technically you can switch entities for a marginal benefit each time taking account of professional fees, overhead costs etc. That is the peril of having a high registration limit!!!

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Replying to david.bransbury:
Stepurhan
By stepurhan
07th Oct 2014 08:31

For registration purposes?

shaun king wrote:
The concept of a TOGC is covered by the VAT legislation and specifically says that the vendor must be registered for VAT for it to be a TOGC.
Isn't that specifically for determining whether VAT is charged on the sale? Does it specifically say for all registration purposes as well?
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Replying to david.bransbury:
RLI
By lionofludesch
07th Oct 2014 09:23

Spot On

shaun king wrote:
The concept of a TOGC is covered by the VAT legislation and specifically says that the vendor must be registered for VAT for it to be a TOGC. So technically you can switch entities for a marginal benefit each time taking account of professional fees, overhead costs etc. That is the peril of having a high registration limit!!!

Agree with this.

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Replying to david.bransbury:
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By mackthefork
09th Oct 2014 19:52

Hello there

shaun king wrote:
The concept of a TOGC is covered by the VAT legislation and specifically says that the vendor must be registered for VAT for it to be a TOGC. So technically you can switch entities for a marginal benefit each time taking account of professional fees, overhead costs etc. That is the peril of having a high registration limit!!!

I would have thought that if the sole trader was approaching the VAT registration limit, and the transfer of the business did not qualify as a Transfer of a Going Concern for VAT purposes, then the actual transfer of the business would either be a taxable supply or a taxable deemed supply.

Following this logic one would assume a liability to register for the sole trader arises, who immediately ceases trading, so most of the time in this situation there would be no VAT on the sale because the amount would generally be under £81,000, but if the trader had reason to think he would be making supplies of over £81,000 in the next 30 days alone, he would need to register from the date he was first aware this was likely to occur.  If this happened though the transfer would be a TOGC and the threshold would never be breached.

s49(1) VATA 1994 says

Where a business, or part of a business, carried on by a taxable person is transferred to another person as a going concern, then -

(a) for the purposes of determining whether the transferee is liable to be registered under this Act he shall be treated a having carried on the business or part of the business before as well as after the transfer and supplies by the transferor shall be treated accordingly.

s3(1) VAT 1994 says

A person is a taxable person for the purposes of this Act while he is, or is required to be registered under this Act.

This seems to be saying that the previous turnover can be ignored if the transfer occurs before the date the seller is required by law to be registered from,but does it really mean this, as someone else has said, most businesses could avoid ever becoming registered by constantly switching entities.  There must be something that catches this.  Perhaps required includes required to register at a known future date?  I am uncertain, is thee any cases on this subject,or specific/general avoidance legislation.

Regards

MtF

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By cbp99
07th Oct 2014 08:24

Case Law

Is there any case law on this point?

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By The VAT Doctor
07th Oct 2014 08:50

The law
It can still be a TOGC if the vendor is not registered and the buyer is.

Taking this to its logical conclusion, why does anyone register? Just set up a new limited company every £80k of turnover.

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Replying to Tax Dragon:
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By james3
09th Oct 2014 20:29

Sounds like artificial separation

The VAT Doctor wrote:
It can still be a TOGC if the vendor is not registered and the buyer is. Taking this to its logical conclusion, why does anyone register? Just set up a new limited company every £80k of turnover.

Sounds like artificial separation.

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Replying to Arthur Putey:
By The VAT Doctor
09th Oct 2014 21:41

Of course

james3 wrote:

The VAT Doctor wrote:
It can still be a TOGC if the vendor is not registered and the buyer is. Taking this to its logical conclusion, why does anyone register? Just set up a new limited company every £80k of turnover.

Sounds like artificial separation.

I agree.  Just making the point to those that say this works that life isn't that easy

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By djn24
07th Oct 2014 08:58

I was under the impression that as the new Ltd company would be connected to the sole trader (via the director) then you would need to reference the sales to the previous 52 weeks to ensure that the limit has not been exceeded? 

Otherwise this would be any easy way to get around the VAT registration.  I can't see how this is not a transfer of going concern?

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By The VAT Doctor
07th Oct 2014 09:04

Asset transfers

This is a good debate round our table here!  One other thought.

I am quite a fan of these Bailiff programmes (frustrated ex HMRC officer no doubt) and one of things they come up with all the time when enforcing a debt is the debtor who smugly says, "sorry mate, the assets have been transferred to a new company".

The experienced bailiff has a good answer to this, and they re still able to enforce a debt against the original debtor unless the assets have been properly sold with an inventory and, here's the tricky one, the new owner has paid for the assets in cleared funds.

In a scenario we are talking about, sole prop to limited company, in order to pay for the assets, the sole prop would probably set up a directors loan account to satisfy the debt; he would owe the company money.  I am wondering if HMRC could use this as a weapon to attck the concept that a new entity has taken over?

Legal expertise needed here!

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chips_at_mattersey
By Les Howard
07th Oct 2014 09:06

TOGC

VAT Act s49(1) describes a TOGC, where the transferor is a taxable person, in which circumstance, his turnover counts towards the turnover of the transferee. This cross-refers to Sch 1, which deals with registration. So, if the sole trader in the OP example is neither registered nor required to be, then his turnover is ignored for the limited company's registration.

I think I will bring forward my blog post OK n this issue!

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By spidersong
07th Oct 2014 09:09

Because Section 49 of the VAT Act says it isn't...

S49 says that you only need to count a prior entity's turnover as yours for registration purposes where a taxable person transfers their business. And a taxable person is someone who is registered or required to be registered.

So if they haven't breached the turnover there's no TOGC and no liability to register.

The main bar to changing entity ad infinitum is disaggregation procedures, eventually HMRC will say that the trade is only being run by succesive companies to avoid VAT registration and apply disagregation rules, or they'll say it's a sham and has always been run by one entity.

It was quite common for certain types of business to be run by family members in partnership, if you have a large enough family the number of partnership permutations can be quite the game of happy families: Mum and Dad sell to; Son and Daughter in Law sell to; Brother and Sister in Law etc. etc. making sure it's a different partnership each time.

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By Alan Ferris
07th Oct 2014 09:37

You have to include t/o of the previous business
VAT registration when you take over a going concern

A business is a going concern if it is a business that is live or operating, or sufficient preparatory work has taken place, and the business will continue after it is sold.

Even if you have not taken over any assets at all you may still have taken over the business for the purposes of VAT registration. For example, if you rent premises from the owner of a public house or restaurant and you continue to run the pub or restaurant you will be liable to register for VAT based on the previous publican's or restaurateur's VAT taxable turnover.

VAT registration at the time of the transfer

If you're not already registered for VAT, then to find out if you have to be registered, add your own VAT taxable turnover over the previous 12 months (if any) to that of the VAT-registered business you're taking over. If the total exceeds the registration threshold (currently £81,000), you'll have to be registered for VAT from the day of the transfer.

There's an exception to this. If you can show that you expect the combined turnover in future to be below the deregistration threshold (currently £79,000) - for example, because you won't be opening for the same number of hours - you don't need to register.

Even if you don't have to be registered for VAT at the time of transfer, you can choose to register voluntarily. If your registration is in place at the time of the transfer, you won't be charged VAT on the sale - see the section in this guide on VAT on the sale of a going concern.

VAT registration after you take over a business

If you're not registered for VAT when you take over a business, you might still have to register at some point in the future. You will have to add your turnover (if any) for the previous 12 months to that of the VAT-registered business you bought and check this against the current registration threshold, on a rolling monthly basis.

http://www.hmrc.gov.uk/vat/start/register/takeovers.htm#1

 

 

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Replying to Janski:
By djn24
07th Oct 2014 09:45

Hmm

Alan Ferris wrote:

VAT registration when you take over a going concern

A business is a going concern if it is a business that is live or operating, or sufficient preparatory work has taken place, and the business will continue after it is sold.

Even if you have not taken over any assets at all you may still have taken over the business for the purposes of VAT registration. For example, if you rent premises from the owner of a public house or restaurant and you continue to run the pub or restaurant you will be liable to register for VAT based on the previous publican's or restaurateur's VAT taxable turnover.

VAT registration at the time of the transfer

If you're not already registered for VAT, then to find out if you have to be registered, add your own VAT taxable turnover over the previous 12 months (if any) to that of the VAT-registered business you're taking over. If the total exceeds the registration threshold (currently £81,000), you'll have to be registered for VAT from the day of the transfer.

There's an exception to this. If you can show that you expect the combined turnover in future to be below the deregistration threshold (currently £79,000) - for example, because you won't be opening for the same number of hours - you don't need to register.

Even if you don't have to be registered for VAT at the time of transfer, you can choose to register voluntarily. If your registration is in place at the time of the transfer, you won't be charged VAT on the sale - see the section in this guide on VAT on the sale of a going concern.

VAT registration after you take over a business

If you're not registered for VAT when you take over a business, you might still have to register at some point in the future. You will have to add your turnover (if any) for the previous 12 months to that of the VAT-registered business you bought and check this against the current registration threshold, on a rolling monthly basis.

http://www.hmrc.gov.uk/vat/start/register/takeovers.htm#1

 

 

 

That's what I thought.  Then again I can see that it only applies to taking over a VAT registered business not a non VAT registered business.

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Replying to Janski:
Stepurhan
By stepurhan
07th Oct 2014 09:49

HMRC guidance is not law

Alan Ferris wrote:
http://www.hmrc.gov.uk/vat/start/register/takeovers.htm#1
Well HMRC guidance is not law. If the legislation does not agree with this, then quoting this is irrelevant.

So the question is does the law define a taxable person only as one that is required to register for VAT? It seems likely to me that a taxable person is more likely to be defined as one engaged in a VATable business, whether they are registered or not. Can you provide a link to the part of the legislation with that definition spidersong?

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chips_at_mattersey
By Les Howard
07th Oct 2014 09:47

Avoidance

I agree with spidersong. If a person repeatedly changes the legal entity to avoid registration, then HMRC should rightly treat that as avoidance. I have come across situations where they have assessed a taxpayer on the basis that there was only ever a single legal entity, and that the intervening changes should be ignored.

I think that is slightly different to the OP question.

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chips_at_mattersey
By Les Howard
07th Oct 2014 10:20

Taxable Person

A Taxable Person is defined as one who is, or who is required to be, registered for VAT. VAT Act 1994, s3(1). Thus, a person trading below the threshold is not a taxable person. This leads to the situation where numerous businesses are kept out of the VAT net, and also creates the anomaly under discussion.

Interestingly, European legislation describes a taxable person as one who carries out any economic activity (matching stepurhan's suggestion). See PVD, art 9. Perhaps if HMRC pursued a case using this definition, it would change everything!

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Replying to exceljockey:
blue sheep
By Nigel Henshaw
07th Oct 2014 11:23

surely hmrc have done this

leshoward wrote:

A Taxable Person is defined as one who is, or who is required to be, registered for VAT. VAT Act 1994, s3(1). Thus, a person trading below the threshold is not a taxable person. This leads to the situation where numerous businesses are kept out of the VAT net, and also creates the anomaly under discussion.

Interestingly, European legislation describes a taxable person as one who carries out any economic activity (matching stepurhan's suggestion). See PVD, art 9. Perhaps if HMRC pursued a case using this definition, it would change everything!

Surely HMRC have done this by now, case law anyone please?

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Replying to kevinringer:
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By spidersong
07th Oct 2014 11:54

EU / UK 'Taxable person'

NH wrote:

leshoward wrote:

A Taxable Person is defined as one who is, or who is required to be, registered for VAT. VAT Act 1994, s3(1). Thus, a person trading below the threshold is not a taxable person. This leads to the situation where numerous businesses are kept out of the VAT net, and also creates the anomaly under discussion.

Interestingly, European legislation describes a taxable person as one who carries out any economic activity (matching stepurhan's suggestion). See PVD, art 9. Perhaps if HMRC pursued a case using this definition, it would change everything!

Surely HMRC have done this by now, case law anyone please?

I don't think HMRC have done this before now for a couple of reasons a) it would in essence be the UK government arguing that UK law is defective and doesn't match european legislation (no one on the international stage really want's to run the defence "we're c%&* and we know we are"), however b) more importantly UK law isn't defective. As I see it the meaning of the term 'taxable person' in UK law is subtly different from EU law and is defined within both and courts are never keen to read through a definition from one set of legislation to a different set of legislation when the different set of legislation already carries a perfectly clear definition.

The problem is EU law does define a taxable person as anyone carrying on economic activity, however it also allows (under title XII, Section 2, Art 284 on) member states to exempt certain taxable persons from being treated as taxable persons [those trading under the registration threshold]. This is what S3(1) and Sch 1 of the UK VAT Act do, so in the UK Act  'Taxable Person' isn't meant to just be a direct read of Art 9 and should actually be phrased (from an EU viewpoint) 'Taxable person operating outside the allowed exemptions'.

So to my mind UK law impliments EU law correctly on this point so it's not really open to HMRC to argue that we should look at an EU law term in isolation to decide a point of valid UK law that's adequately defined.

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Replying to bpmd:
By The VAT Doctor
07th Oct 2014 12:03

sensible

spidersong wrote:

NH wrote:

leshoward wrote:

A Taxable Person is defined as one who is, or who is required to be, registered for VAT. VAT Act 1994, s3(1). Thus, a person trading below the threshold is not a taxable person. This leads to the situation where numerous businesses are kept out of the VAT net, and also creates the anomaly under discussion.

Interestingly, European legislation describes a taxable person as one who carries out any economic activity (matching stepurhan's suggestion). See PVD, art 9. Perhaps if HMRC pursued a case using this definition, it would change everything!

Surely HMRC have done this by now, case law anyone please?

I don't think HMRC have done this before now for a couple of reasons a) it would in essence be the UK government arguing that UK law is defective and doesn't match european legislation (no one on the international stage really want's to run the defence "we're c%&* and we know we are"), however b) more importantly UK law isn't defective. As I see it the meaning of the term 'taxable person' in UK law is subtly different from EU law and is defined within both and courts are never keen to read through a definition from one set of legislation to a different set of legislation when the different set of legislation already carries a perfectly clear definition.

The problem is EU law does define a taxable person as anyone carrying on economic activity, however it also allows (under title XII, Section 2, Art 284 on) member states to exempt certain taxable persons from being treated as taxable persons [those trading under the registration threshold]. This is what S3(1) and Sch 1 of the UK VAT Act do, so in the UK Act  'Taxable Person' isn't meant to just be a direct read of Art 9 and should actually be phrased (from an EU viewpoint) 'Taxable person operating outside the allowed exemptions'.

So to my mind UK law impliments EU law correctly on this point so it's not really open to HMRC to argue that we should look at an EU law term in isolation to decide a point of valid UK law that's adequately defined.

I like the thinking here.

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Replying to exceljockey:
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By james3
09th Oct 2014 20:37

Unless they registered voluntarily.

leshoward wrote:

A Taxable Person is defined as one who is, or who is required to be, registered for VAT. VAT Act 1994, s3(1). Thus, a person trading below the threshold is not a taxable person.

Unless they registered voluntarily.

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By spidersong
07th Oct 2014 11:07

without moving my lips...

stepurhan wrote:

Can you provide a link to the part of the legislation with that definition spidersong?

leshoward wrote:

VAT Act 1994, s3(1)

But seriously

The VAT Doctor wrote:

If this does work (including transfers of assets by book entry), there is a moral issue here too. Have we a duty to the client to advise them to do this so their tax bill is as low as possible or should we in effect advise them to pay too much tax?

On the moral issue I have advised people considering going limited to take timing into consideration and possibly avoid registration for a few more months by transfering at the right time, if it was to their advantage. 

However I've never advocated adopting artificial arrangements to avoid VAT registration (for one thing there's legislation there to challenge it), but I've no problem with people going through a normal business procedure making sure that they plan to their advantage. Likewise I've advised backdating of registration, or voluntary registration, in order to make sure the EDR falls within the 6 month limit for recovery of pre-reg services.

The key point for me is is someone doing this in the course of their business, or are they doing it purely in the course of avoiding VAT. So for setting up special purpose vehicles, or intermediary companies, if they're there mainly to protect assets or ringfence a risk of somekind then it's reasonable to take advantage of any tax benefits they might also offer but I tend to take the view that the legislation is there to be taken advantage of but not to be made a mockery of. But it's all lines in the sand and I appreciate some peoples are going to be further back or further forward than mine.

In the OPs case it looks like business as normal, from what's said, so I'd certainly not have had an issue with saying 'you may want to incorporate this month rather than waiting till December" or something similar.

On the issue of how it's to be paid for whether cash or book transfer I'm afraid I'll defer that part of the conversation, as I haven't the time to see check caselaw and see if HMRC have challenged any arrangements based on that issue, although I'd imagine it's a point they'd consider.

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RLI
By lionofludesch
07th Oct 2014 11:18

Avoidance

Is there any suggestion of deliberate avoidance here ?

Is there a genuine commercial motive behind the incorporation or is it simply a way to postpone registration for VAT for a few more months ?

I'm not seeing any hint of the latter in the OP - but I'm prepared to be corrected on the point.

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chips_at_mattersey
By Les Howard
07th Oct 2014 21:28

blog post

My latest blog post is here: https://www.accountingweb.co.uk/blog-post/togc-and-vat-registration

After such a comprehensive debate, there is not much additional in the blog. However, I did find a piece of HMRC Internal Guidance on the matter.

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By djn24
08th Oct 2014 08:40

I've done my own research on this and I have to agree with you on this one.  It is a very useful piece of information that could well save clients thousands of pounds. Thank you!

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By shaun king
08th Oct 2014 10:25

Taxable Person

Spidersong's reference to EU legislation and Les's explanation are in my opinion a clear demonstration of why you do not need to consider past turnover if you transfer a business from one legal entity to another.

I am somewhat surprised that people are showing surprise at this "loophole" as it has been in existence for a long time and exploited by many smaller businesses. This is a price that the UK pays for having such a high registration threshold, but as I said earlier the costs of undertaking the transfer do eat into any savings that are made and it does require careful administration.

Someone mentioned the disaggregation rules and these only apply if you attempt to separate one existing business into a number of different businesses, which is not happening here.

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Replying to AndyC555:
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By spidersong
08th Oct 2014 11:49

"Temporal disaggregation"

shaun king wrote:

Someone mentioned the disaggregation rules and these only apply if you attempt to separate one existing business into a number of different businesses, which is not happening here.

Just to clarify on this, whilst we're agreed that disaggregation is unlikely to apply here, it can apply to this type of situation where businesses get near the limit and then transfer to a new entity. The law applies where a business has been carried on "concurrently or previously (or both), by one or more persons" meaning that they can catch transfers to succesive companies. (HMRC refer to it as 'temporal disaggregation' apprently: http://www.hmrc.gov.uk/manuals/vatdsagmanual/VATDSAG05100.htm )) ))) ) 

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By Drew7890
08th Oct 2014 13:08

Coming to this a bit late...

 

...and may have missed something but does this not suggest that there can be a TOGC for a non-registered trader.

 

http://www.hmrc.gov.uk/manuals/vtogcmanual/vtogc3100.htm 

 

I do appreciate that this is HMRC guidance rather than law.

 

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By spidersong
08th Oct 2014 14:23

Drew780 - Yes, but...

Several of the post above may be slightly misleading as although they use TOGC which does indeed mean Transfer of a Going Concern what they're really meaning is a 'TOGC requiring registration' or 'TOGC in which the previous entities turnover must be counted for registration purposes' or 'TOGC that falls foul of Section 49 of the VAT Act'.

But as no one really wants to write any of those in full each time we've been saying there's no TOGC, when we mean 'no TOGC for registration purposes'.

You are quite right, as is the guidance, that that the Special Provisions Order 1995 allows for a non-registered business to be transfered as a going concern without it being a supply for VAT purposes, however the effect from a vendors point of view isn't the element under discussion, and so we've perhaps been using the phrase in a less technical sense specifically in terms of its application to registration issues.

 

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By The VAT Doctor
09th Oct 2014 09:03

HMRC Guidance

The link provided indicates HMRC would indeed consider this as disaggregation. Motive is not relevant anymore in these cases, post 1997, but I would say that if there are good reasons to incorporate after a period, then that should be OK, so you may get two bites at the cherry.

I am very surprised at the confidence of some on here that this is 'watertight'.  The guidance from HMRC indicates they think otherwise.  Taking Shaun's comments to their ultimate conclusion, it would presumably be OK for any retailer to keep setting up new companies ever 80k of turnover, then transferring the stock and assets and starting again.  This seems to me wildly optimistic and HMRC's attitude and I would be advising a client to proceed with caution.

My two pennyworth!

 

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By shaun king
09th Oct 2014 10:06

Yes it would

Doctor - taking it to the extreme then yes it would and it will then be up to HMRC to legislate against it like they did with disaggregation. If the law is deficient that is a matter for the tax authority to remedy and not the taxpayer.

I would say that in your example of a retailer then there is likely to be minimal benefit as non registration means no Input tax recovery and margins are tight. It is however, more beneficial to a service provider with minimal VAT bearing expenditure.

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Replying to Duggimon:
By The VAT Doctor
09th Oct 2014 10:47

Russian Roulette

shaun king wrote:

Doctor - taking it to the extreme then yes it would and it will then be up to HMRC to legislate against it like they did with disaggregation. If the law is deficient that is a matter for the tax authority to remedy and not the taxpayer.

I would say that in your example of a retailer then there is likely to be minimal benefit as non registration means no Input tax recovery and margins are tight. It is however, more beneficial to a service provider with minimal VAT bearing expenditure.

It's a bit like the follies of youth.  Things we did as a child seemed fine, nothing to worry about, but life experience generally makes us realise that life is more complex, more grey areas.  I am sure none of the professional advisors on here, including Shaun, are routinely advising clients to set up new companies every £80k of turnover. If this assumption is wrong, I would say that this is akin to Russian roulette and I would make sure my insurance was up to date.  All HMRC have to do is to prove that supplies are still made by the original entity (and I do think that whether the new person has paid for the assets is important), and what will follow is a belated registration up to 20 years.  HMRC would go for a direction only as a last resort.  Like all planning, it has to work in practice and not just on paper.  This is why, if the assets are not paid for at OMV each time, it strongly suggests it was not a proper transfer.

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Replying to Duggimon:
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By spidersong
09th Oct 2014 10:50

Legislate?

shaun king wrote:

Doctor - taking it to the extreme then yes it would and it will then be up to HMRC to legislate against it like they did with disaggregation. If the law is deficient that is a matter for the tax authority to remedy and not the taxpayer.

I would say that in your example of a retailer then there is likely to be minimal benefit as non registration means no Input tax recovery and margins are tight. It is however, more beneficial to a service provider with minimal VAT bearing expenditure.

But they already have legislated against it. Their internal guidance (for what it's worth) makes it clear that they view the disaggregation legislation as applying to the build up - transfer style of trading. Now obviously HMRC guidance and their viewpoint isn't always that persuasive but going direct to the source I don't see the law being deficient, it specifically mentions situation where there is a continuance of trade rather than concurrent trade.

VAT Act 1994, Sch 1, Para 2 (2) (b) says that the disaggregation rules apply where "activities in the course of which [a person] makes or made those taxable supplies form only part of certain activities...,the other activities being carried on concurrently or previously (or both) by one or more other persons". This clearly says that you don't have to have two people trading at the same time for you to be able to aggregate their turnover for the purposes of registration, it's not specific to people splitting a trade so that there are two people trading at the same time below the limits it can be two entities trading at different/succesive times below the limit.

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By The VAT Doctor
09th Oct 2014 16:00

HMRC Shenanigans

Well, this is interesting!  A colleague has just seen this new HMRC guidance on the registration procedures. Effectively, HMRC is saying, for example, if you have a business with £50k turnover, but not registered, and you then buy a business for £40k from someone not registered, you need to register.  This may well be their view in cases of connected successive businesses (as discussed at length), but this surely can't apply where the businesses are not connected?

Am I having a senior moment or have HMRC misunderstood this?

http://www.hmrc.gov.uk/forms/vat1-notes.pdf  See point 9

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By The VAT Doctor
10th Oct 2014 01:23

Penny drops
Apologies, senior moment! I meant that the turnover of the business acquired was £40k. I suppose this could be the same as the purchase price.

The point on the taxable supplies/taxable persons issue is that, as has been pointed out, Sec 49 of VAT Act 1994 says you only count turnover as yours If you are buying a VAT registered business. The notice says the same. Yet this revised guidance says you need to take into account in all occasions

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chips_at_mattersey
By Les Howard
10th Oct 2014 20:38

new HMRC guidance

It seems clear that the new guidance notes issued by HMRC to accompany an Application for Registration is incorrect. Of course, if a taxpayer chooses to follow the advice, he may find it impossible to cancel his registration. ab initio.

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By mikecoulson
11th Oct 2014 13:48

2 different legal entities- so provided the sole prop reg does not exceed the vat threshhold no need to register. The Limited Company will only need to register when it exceeds the vat threshhold

simples

 

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By Salsnips
23rd Nov 2014 20:06

togc unregistered

Hi. I am interested in this because I am thinking of buying a business currently run as a sole trader but running it as a limited company. There is no family connection - it is a genuine transfer. The business is not currently registered for VAT, so I want to know if the clock starts again at zero when I take over.

 

One thing that worries me is that, if the previous owner actually had taken steps to remain under the threshhold for registration, and in fact should have been registered at the time of the sale, how would that affect me?

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Replying to DJKL:
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By james3
23rd Nov 2014 21:37

Re: salsnips

Salsnips wrote:

Hi. I am interested in this because I am thinking of buying a business currently run as a sole trader but running it as a limited company. There is no family connection - it is a genuine transfer. The business is not currently registered for VAT, so I want to know if the clock starts again at zero when I take over.

One thing that worries me is that, if the previous owner actually had taken steps to remain under the threshhold for registration, and in fact should have been registered at the time of the sale, how would that affect me?

It would make sense for the "clock to start again at zero" when a new entity takes over a business activity, but that would allow people to set up a chain of companies and pass the business through it to avoid having to register for vat. Therefore, the chain of past earnings is treated as having been carried out by the new entity each time. See Value Added Tax Act s 49(1)(a).

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By Salsnips
23rd Nov 2014 21:53

Thanks for that info. It refers to a 'taxable' person. The business I am hoping to buy is not Vat registered. Does this make a difference?

 

I can see lots of info about togc in relation to registered businesses, but not unregistered. 

 

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Replying to ketteringUK:
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By james3
23rd Nov 2014 22:18

Not 100% sure. This is one of the questions raised above:

mackthefork wrote:

This seems to be saying that the previous turnover can be ignored if the transfer occurs before the date the seller is required by law to be registered from,but does it really mean this, as someone else has said, most businesses could avoid ever becoming registered by constantly switching entities. There must be something that catches this.  Perhaps required includes required to register at a known future date?  I am uncertain, is thee any cases on this subject,or specific/general avoidance legislation.

leshoward wrote:

VAT Act s49(1) describes a TOGC, where the transferor is a taxable person, in which circumstance, his turnover counts towards the turnover of the transferee. This cross-refers to Sch 1, which deals with registration. So, if the sole trader in the OP example is neither registered nor required to be, then his turnover is ignored for the limited company's registration.

Hopefully someone can clear this up.

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Replying to lja20:
RLI
By lionofludesch
24th Nov 2014 11:30

Distinguished

james3 wrote:

Not 100% sure. This is one of the questions raised above:

mackthefork wrote:

This seems to be saying that the previous turnover can be ignored if the transfer occurs before the date the seller is required by law to be registered from,but does it really mean this, as someone else has said, most businesses could avoid ever becoming registered by constantly switching entities. There must be something that catches this.  Perhaps required includes required to register at a known future date?  I am uncertain, is there any cases on this subject,or specific/general avoidance legislation.

leshoward wrote:

VAT Act s49(1) describes a TOGC, where the transferor is a taxable person, in which circumstance, his turnover counts towards the turnover of the transferee. This cross-refers to Sch 1, which deals with registration. So, if the sole trader in the OP example is neither registered nor required to be, then his turnover is ignored for the limited company's registration.

Hopefully someone can clear this up.

There's a difference between selling a business to an unrelated third party and novating your own business to avoid paying VAT.

In the first case, I don't think that you have right of access to the information you would need to decide when to register.  In the second, you're artificially avoiding registration.

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Replying to ketteringUK:
RLI
By lionofludesch
24th Nov 2014 11:22

A world of difference

Salsnips wrote:

Thanks for that info. It refers to a 'taxable' person. The business I am hoping to buy is not Vat registered. Does this make a difference?

I can see lots of info about togc in relation to registered businesses, but not unregistered. 

It makes a world of difference.

Buying an unregistered business ?   It's not a TOGC because both businesses need to be registered.

But they can't charge you VAT because they're not registered.

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