Fortunately, the answer is usually no. The Value Added Tax (Special Provisions) (Amendment) Order 1998 provides that VAT is not chargeable on the transfer of a business as a going concern, provided the following conditions are met:
This requirement will be satisfied if the buyer registers for VAT in the same VAT quarter as the sale. This means that if you are a seller it is important to ensure the buyer is registered for VAT. If the buyer is not VAT registered, then it would be wise to insist that he either registers for VAT before exchange of contracts, or hands over an additional 17.5% of the sale price on completion. That sum can be held in escrow and returned to the buyer provided he registers for VAT before the end of the VAT quarter.
Both buyer and seller must use the assets transferred for an "economic activity".
A going concern will normally include physical assets, goodwill, ongoing orders and staff. If the business has closed for a substantial period before the transfer, or if there has been some other significant break in its normal trading pattern, then this may prevent it from being classed as a going concern.
If there is a series of immediately consecutive transfers then the business will not be treated as a going concern. For example, if A sells to B who immediately sells to C, then B will not have carried on the business, so VAT liability will arise on both transactions.
For example, if the buyer intends to merge the business he is buying with his existing business, then he may prefer not to take over all the assets of the target business in order to avoid duplication. However if the assets to be transferred are not capable of operating as a business in their own right, then VAT liability may arise.
Even if you are confident of meeting the above criteria, you should guard against the possibility of the VAT authorities later ruling that the transfer was subject to VAT.
If you are the seller, you should ensure the contract states that the selling price excludes VAT. This means that if it later emerges that the sale was subject to VAT, you can pursue the buyer for the extra 17.5% of the sale price.
If the contract does not mention VAT then prices are deemed to include VAT. This means that if it later emerges that the sale was subject to VAT, you will have to pay over a proportion of your sale proceeds to HM Revenue & Customs (HMRC).
The contract should also contain an undertaking by the buyer to account for any VAT that HMRC deem payable.
If the seller is not registered for VAT then no VAT is payable on the transaction.
If the seller's turnover is below the VAT registration threshold, but the value of the sale takes the seller over that threshold, then the seller will not be required to register for VAT as a result of the sale.
The situation is more complicated when it comes to VAT on land or property which is included in the sale of a business.
Normally, a transfer of commercial property is exempt from VAT, whether or not it is part of a business sale. However, transfers of commercial property can be subject to VAT if:
However, where the transfer of property forms part of a business sale and the going concern tests are satisfied, VAT will not be payable unless the buyer has not opted to tax the property, in which case VAT must be charged on it.
It is essential to take advice from your accountant in this area as other potential traps, such as the Capital Goods Scheme, may apply.
In some circumstances you can, but the rules are very complex, so speak to your accountant or to HMRC.
In general, however, it is not recommended you take over the previous owner’s VAT number because it means you will also take over his VAT liabilities.
As a result of the 2007 Budget, changes have been made to the legislation regarding VAT records. As of 1 September 2007, the seller must retain these records if he is selling his business as a going concern.
There are a few exceptions, namely where the buyer is retaining the seller's VAT number. The seller must make available to the buyer information necessary for him to comply with his duties under the VAT legislation.