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If you take over a business that's a going concern, you may need to be registered for VAT on the day you take over the business. This guide explains when you may need to be registered, and whether you can expect to be charged VAT on the sale of the business.
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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.
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.
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.
If the business you're taking over is a transfer of a going concern and is VAT-registered, and you are already VAT-registered or you need to be registered on the day of the transfer, you won't be charged VAT on the sale and there won't be any for you to reclaim.
If the business you're taking over is VAT-registered, but you aren't VAT-registered on the day of the transfer and don't need to be and you don't chose to register voluntarily, you will be charged VAT on the sale.
You buy the assets of a business if you are only buying particular items from that business rather than taking over the entire business or an identifiable part of a business capable of separate operation.
If you buy the assets of a VAT-registered business, you will be charged VAT at the appropriate rate on each supply. You will be able to reclaim it if you're registered for VAT and you use the assets for making VAT taxable supplies. Assets can include stock-in-trade, machinery, goodwill, premises and fixtures and fittings.
There are additional steps you may need take before and after you buy a business whose assets include capital assets such as:
Where the value of these items is £250,000 or more, or £50,000 or more in the case of computers and computer equipment, the Capital Goods Scheme (CGS) may apply.
Freehold sales, leasing, rental and other supplies of land and buildings are normally exempt from VAT. This means that no VAT is payable on these land transactions, but it also means that any of the VAT incurred on associated expenses cannot be recovered.
However, you can opt to tax land and/or buildings for the purposes of VAT. Once you have opted to tax the asset, all sales or other supplies you make of any interest in the asset - for example, rental - will normally be standard-rated, and you can reclaim any VAT you pay on associated expenses.
When you're taking over a going concern that involves the transfer of land or buildings, if you decide to opt to tax you need to give HM Revenue & Customs (HMRC) written notification, by a certain date. You will also need to notify the seller whether your option is disapplied, again by a certain date.
If you buy a VAT-registered business that has been self-billing, the self-billing arrangement cannot remain, because the self-billing agreements were made between the seller of the business and their suppliers. If you want to self-bill, you will have to make a new self-billing agreement with every supplier. It makes no difference whether or not you keep the VAT registration number - you still have to make a new agreement with every supplier.
You may be able to keep the VAT registration number of the business you acquire as a going concern. If you do, you will also take on all VAT responsibility of the business you are buying, such as unpaid output tax, unclaimed bad debt relief and record-keeping requirements.
Both the buyer of the business and the seller must agree to the transfer of the VAT registration number, and must tell HMRC - which you can do online.
Alternatively, you can use form VAT 68 and send it to HMRC by post.
If the seller used an accountant to submit their VAT Returns and you are sending a form VAT 68 to HMRC, you will need to either:
Note: If the seller's accountant was enrolled to submit VAT Returns on his behalf - and you want to use the same agent - then the agent will need to re-enrol through the online agent authorisation process.