Your words of wisdom would be much appreciated please!
My client who is not VAT registered (she is newly self employed) took over a cafe from the seller who was VAT registered (he has several businesses) last month. She bought the business for £10,000.00 50% goodwill and 50% assets. I have just started doing her accounts and her turnover is currently a little under the threshold to register for VAT.
If her turnover increases in the near future and she does have to register for VAT can she reclaim any of the £10000 that she paid or would she of had to be registered at the time of the sale?
What would of been the position of the seller with regards to the VAT if my client was not VAT registered at the time of the sale.
you can claim the VAT back on preregistration expenditure up to three before registration for assets, providing you still have them, and up to 6 months back for services.
Be careful with the registration as the annual turnover threshold is a rolling 12 month period so you need to monitor it closely.
Kind regards
Nick
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Nick
Nick Craggs FMAAT ACA AAT Distance Learning Manager
Is that upto 3 months before registration for assets? What about the goodwill?
When you say a 12 month rolling period, would we have to take into account the previous owners turnover prior to the sale or just looking forward? I've had so many mixed views on this!
Be very careful! If the transfer was a TOGC, then the turnover of the previous owner counts towards the registration limit. You will need to obtain details of the Vendor's turnover for the 12 months prior to transfer to check this. (Do consider the worst case scenario; what if registration should therefore have been from the date of transfer? You cannot recover VAT from customers, so who will pay?) The limit for back dated input tax is six months before registration for purchase of services (not three months), and 4 years before registration for goods. I suggest goodwill is a supply of services. There are potentially serious issues here; you may have to engage a VAT Specialist to advise more directly.
I was actually meaning three years, not months, but as Les has pointed out it is now 4 years, I am not sure when this changed, but you learn something every day!
I think for what it costs, it may be worth engaging a VAT specialist for an hour or so just to be sure.
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Nick
Nick Craggs FMAAT ACA AAT Distance Learning Manager
I think that you are right as its getting a little complicated.
What if the 12 month period (that includes the vendors turnover) remains below the threshold though. Surely then the buyer would not of had to register for VAT at the time of transfer even if TOGC?
Going forward it seems that the turnover is not likely to go above the threshold certainly as now for 2013 the threshold has been increased?
You will need to review the turnover of the Vendor's business for 12 months before the date of transfer, compare that against the relevant threshold at the time of transfer (£2,000 below registration threshold). If that 12 months turnover was below the threshold, then the Purchaser would not need to register for VAT. From thereon, the Purchase has to monitor his turnover monthly, taking into account the Vendor's turnover. So: TFR + 1 month; 1 month of Purchaser + 11 months of Vendor TFR + 2 months; 2 months of Purchaser + 10 months of Vendor etc. (I hope that makes sense!) And do keep a record of this exercise, as it will protect you if HMRC challenge what happened.
Thank you so much for that advice. I will first check the vendors turnover and see where we stand! He did assure my client that she would not need to register so I am hoping his turnover is below the threshold!!
