Taking Account

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VAT - buying and selling a business

November 2008

If you buy a business as a going concern, in other words if you continue with the existing trade in place of the seller, you do not have to pay VAT on the transfer of the trading assets.

But beware. The reason you do not need to pay VAT is that the transfer of a business is considered to be outside the scope of VAT. If the seller is advised to adopt a broad brush approach and just charge VAT because he cannot decide if a bona fide sale as a going concern applies, you may be denied recovery of the VAT added!

It is therefore important to clarify whether the sale is a sale as a going concern or not.

Purchasing property

Further complications can arise if you purchase a business property which has an existing option to tax applied. This means that all income generated by the property is a standard rated output. It also means that a seller may be required to add VAT to the sale price.

However the seller can avoid this VAT add-on if one of two specific circumstances apply:

  • if the new owner makes an election to opt to tax their interest in the same property. This election must be made before ownership is transferred,
  • if the new owner is buying the property to convert to dwellings.

In both cases there are prescribed forms to fill in and file.

Hilton Sharp & Clarke