VAT for part year

elljay

Dear all, we took over a business part way through this financial year - how would VAT be calculated? Does our turnover for this year get added to the previous owner's turnover for this year to decide VAT liability or is it left until next financial year. Although they won't give us their figures for the last month or two of their ownership, we predict from our figures that we may just hit the £73k threshold by end of March if we add theirs and ours together.

Can anyone let me know how it would work? Thanks

bris

If you think you are going to hit the VAT threshold you really should register. The VAT man can backdate VAT charges if he believes you knew you were on taget to exceed the threshold, they work this out by looking at your quarters, lets say you hit 20k three quarters running, you now know you are on target to hit the threshold and so does the VAT man. If you think it's border line you can hold off on registering until you hit it.
Is it a ltd company you have taken over? If so the turnover will be included and should be made available to you. If you are just taking over a sole traders assets then you will start you own financial year from day one and can ignore the last owners turnover.

elljay

Thank you. The previous owners were a ltd co and for now I'm sole trader. I had their figures from previous years but not for the 6 weeks/2 months leading up to handover. In the two previous years they reached the threshold but never declared it. We might not I suppose but I wondered if our figures need to be added to theirs for the financial yr to come up with total liability.

Presumably if we jointly hit the threshold they'll have to pay too.

JasonLVC

When you acquired the trade and assets of the business, were you charged VAT by the seller?

Usually, when a business is sold and the buyer is carrying on the same business (ie, if you buy a chip shop and you carry it on as a chip shop), then this is a Transfer of a Going Concern in VAT speak.

No VAT should have been charged on the sale of the business to you, you should register for VAT straight away and the previous business turnover IS to be included in your figures (ie, there's no break in trade/accounts, just the owners have changed) and so you will find you probably do need to register for VAt from the day you took over the business.

Transfer of Going Concern is a mandatory requirement when the conditions for it are met. If it was a Transfer of a Going Concern and you were charged VAT by seller you need to see a lawyer/Accountant fast as any VAT you were charged by the seller is not VAT recoverable and you'll be out of pocket by potentially a lot of VAT.

If this was not a Transfer (ie, seller was a chip shop and you're converting it into a shoe shop) then VAT will be charged on the sale of the business to you but as it is not a transfer of same trade, you start with a fresh set of accounts from the day you acquired the business and have no need to register for VAT (but may want to if you want tor reclaim the VAT charged to you by the seller).

elljay

Thank you. No, VAT wasn't charged on the transfer. They have now closed down their limited company and are no longer in any kind of business. I have asked repeatedly for their figures for the last weeks before we took over but there have always been various reasons why they can't provide them and I suspect I won't get them, these people have been difficult and untruthful throughout the whole thing. I just want to do the right thing and not have to worry about it.

JasonLVC

elljay wrote: »

Thank you. No, VAT wasn't charged on the transfer. They have now closed down their limited company and are no longer in any kind of business. I have asked repeatedly for their figures for the last weeks before we took over but there have always been various reasons why they can't provide them and I suspect I won't get them, these people have been difficult and untruthful throughout the whole thing. I just want to do the right thing and not have to worry about it.

The guidance is clear on the matter of records :-

"The seller of the business retains the business records, unless the VAT registration number is also transferred. However, the seller must make available to the purchaser the information necessary for the purchaser to comply with his duties under the VAT Act."

If its' just a few weeks worth of trade, I wouldn;t bother too much about it, HMRC will just want to see you being registered from the date you took over and VAT charged on sales from that date onwards.....anything pre-transfer is the sellers problem.

If VAT wasn't charged then, and the selling business was VAT registered, then you must also be VAT registered from the date the transfer took place. So submit your VAT registration now and use the date of transfer as date you want to be registered from.

You cannot choose a later date or not register at all becuase you've acquired a business via transfer route and so you have to register for VAT whether or not YOUR sales are below the threshold or not, becuase what matters is the turnover of the old business, which you already have, give or take a few weeks trade.

You can deregister at the point where your turnover drops below £71k in any 12 month period without affecting the original transfer of trade matter.

elljay

Thank you so much, it was actually 3 months so longer than I thought actually. The previous owners did not register or pay though the previous 2 yrs clearly show turnover above the threshold.

They lost interest and ran the business down in the three months before we took over and takings are now on the up again with us in charge so for the 3 quarters that we will have been in business by the end of March we will have met 3 quarters of the threshold - just!

I will register for VAT immediately and thank you for your guidance.

Cardinal-Red

bris wrote: »

If you think you are going to hit the VAT threshold you really should register. The VAT man can backdate VAT charges if he believes you knew you were on taget to exceed the threshold, they work this out by looking at your quarters, lets say you hit 20k three quarters running, you now know you are on target to hit the threshold and so does the VAT man. If you think it's border line you can hold off on registering until you hit it.

This isn't true.

The two tests for compulsory registration are that you either exceed the threshold in the previous 12 months of trading, or you expect to exceed it in the next 30 days alone... i.e. you will generate taxable turnover in the next 30 days that is over the threshold.

Therefore in your example, you have £60,000 income (assuming this is all taxable) in 9 months. You have no obligation to register until you make another £13,000. There is no "look forward" based on previous turnover.

To the OP - sounds like you need some professional advice here as sounds like you have inherited a tricky position. I realise MSE is not the place for full details but you may want to get some advice from an accountant just to make sure you are not storing up trouble for yourself in the future...