Selling an Unregistered Business.
Should VAT be charged on the purchase price of an unregistered business?
As a rule of thumb, a business must be registered for VAT if its taxable sales have exceeded the registration threshold (currently £85,000) in the previous 12 months, OR if its taxable sales are expected to exceed that same figure in the next 30 days alone.
But what happens when an unregistered business, with a turnover below the threshold figure, is the subject of an offer exceeding the £85,000? If the business owners agree to sell the business, do they need to register the business for VAT and charge VAT on the purchase figure?
The view of HMRC would most likely be that VAT should not be charged on the sale as it is the transfer of a going concern (TOGC) to which special VAT rules apply. These say that a transaction which is a TOGC is outside the scope of VAT and can therefore be ignored for registration purposes. Consequently, the business owners do not need to register the business for VAT.
If you are considering selling or buying a business, our specialist team would be delighted to assist. Just call our Lancaster office on 01524 67111 and we will arrange to meet you at a convenient time and location.
Author: Gill Lowcock FCCA
Gill joined Scott & Wilkinson in 2001 and qualified as an Accountant in 2004. Prior to studying Information Business Technology at Myerscough College, Gill attended Garstang High School. Gill is involved in all areas of accounts, audit...
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