VAT when buying or selling a business

The purchase of a business as a ‘going concern’ is not subject to VAT. So 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.

A common example would be taking on a public house, if the changeover happens ‘overnight’ or if the pub is closed for just a day or two it would be a transfer of a going concern. However if the pub had been closed for a period of weeks, it would not constitute a transfer of an existing business.

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 the transaction really is a bona fide sale of a going concern then you may be denied recovery of the VAT added!

It is important to clarify whether the sale is a sale as a going concerns or not. Don’t hesitate to ask us if this applies to you.

Purchasing property
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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.

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