Sale of Going Concern

T.C.

My client is selling his business. It consists of a van, a client list and goodwill, so not a huge business - selling for £20K. He is VAT registered. It is my understanding that if he is to sell as a going concern, then VAT is not chargeable if the buyer is to 'take-over' the VAT on a going-concern transfer. Is there anything else you think I should be aware of? And obviously the sale of the business will involve tax?! Any advice appreciated - don't do this sort of thing very often.

Monsoon

If a taxable (VAT tax) person sells their business, or part of a business that is capable of being run on its own, then this can be a TOGC. A TOGC is not a taxable supply and therefore VAT is not chargeable on the sale of the business. However, for TOGC to apply, the purchaser has to be registered for VAT after the sale, if they were not before.

HMRC info

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_ShowContent&id=HMCE_CL_000093&propertyType=document

http://www.hmrc.gov.uk/manuals/lftmanual/lft10020.htm

The sale of the business will be chargeable to CGT on him personally. After the sale if he is no longer eligible to be registered for VAT he must deregister, if the purchaser took their own VAT number. The purchaser may elect to take over the VAT number from your client, but if he did this he would be liable for all history of that VAT number so this is not normally advisable.

T.C.

That is brilliant. Thank you very much!

Monsoon

No worries. Taking a VAT exam yesterday was clearly helpful

T.C.

Yes, obviously helpful for us all!! haha

Jmann

Not all the proceeds is subject to CGT, some may be subject to IT too, depending on whether capital allowance was claimed. There may be a balancing allowance or charge for the van and any other asset (claimed capital allowance)

T.C.

Yes, I will take the van out of the equation first, then work out the CGT. Thanks for the reminder.

Jmann

And ER.

T.C.

Gone a bit blank .....ER?

Monsoon

entrepreneurs relief (on CGT). And thanks Jmann, yes there may by IT on some aspects, quite right.

T.C.

Thanks everyone.

T.C.

Entrepreneurs Relief seems right here. Just checked the criteria. Sole trader selling business to move abroad. Goodwill element gives him a £20K gain. Can see any reason why this won't apply? Agree?

Monsoon

Yeah if he's selling a business he's owned for the right length of time (2 years I think from memory?) then ER will apply, for sure.

T.C.

He will be pleased!

Jmann

Qualifying period is one year. As long as he owned the business for one year and dispose of whole or part of the business. When was the business sold? May just get 10% after AE.

deanshepherd

If he sold it after moving abroad he may avoid CGT altogether.