Selling your business? Don’t let VAT be the reason the sale is delayed – consider the VAT impact early!
If you’re thinking about selling all, or part of your business, there’s one slightly boring but crucial question to ask yourself - do you need to charge VAT?
You may have heard people talk about the Transfer of a Going Concern (TOGC) rules. In simple terms, where certain conditions are met, no VAT is charged on the sale. That's usually good news, especially for the buyer's cashflow. The rules are compulsory, so you also can’t just decide to charge VAT ‘because it’s easier’, or ‘because the buyer can recover VAT anyway’.
TOGCs are often not identified correctly and are always best considered before contracts are drafted. This helps to reduce the likelihood of delays or confusion on the VAT treatment.
HMRC accept property rental businesses (e.g., a commercial property transferring with the benefit of the existing leases) can qualify as a TOGC. That said, there can be a few extra steps required, for example, the buyer may need to opt to tax the property before completion.
Watch out for common pitfalls, such as:
If the seller is VAT registered, the buyer must be VAT registered or become VAT registered immediately as a result of the TOGC.
Where necessary, options to tax must be made and notified correctly before completion.
The buyer not intending to continue the same kind of business activity as the seller, even if it feels similar, can scupper a TOGC.
Inadequate warranties in the contract for sale to protect either the seller or buyer.
If something is treated incorrectly as a TOGC, the seller may need to account for VAT on the sale from the sale proceeds, and may face difficulty in recouping this form the buyer.
So, what should you do?
Get professional VAT advice! At Otterbear Advisory, we can hand-hold you through the process ensuring from a VAT perspective, the paperwork is in place, the conditions are met and the buyer and seller are comfortable with the VAT treatment.
Most importantly, we make sure the structure works commercially and protects cashflow for everyone involved.
Get in touch with us here.
