VAT on Goodwill Transfer

Frankie

I am trying to decipher whether my client has been charged VAT incorrectly on the purchase of a window cleaning client list, no equipment included. A sale of goodwill by itself is not likely to be a TOGC but if the goodwill itself allows the buyer to run a similar business then it can be a TOGC but does this apply in this instance? If indeed this is not a TOGC and VAT has been charged correctly, can the VAT be reclaimed as Capital Expenditure? My client is on FRS.

douglasstroud

Did your client not seek professional advice before the purchase?

Frankie

Unfortunately not. I was only made aware of the purchase when paperwork was received. The VAT amount is 2,000 so not insignificant.

douglasstroud

I think as you quite rightly say you need to ascertain if this is indeed a TOGC which would be outside the scope, it does sound as though it is just a supply of potential clients in which case it would be standard rated and in my opinion your client should be able to reclaim the VAT, however you must make sure of this because if VAT has been charged incorrectly then your client will not be able to reclaim.

Frankie

Thank you douglasstroud. I have been told that my client cannot reclaim Vat under FRS due to exemption of ‘capital goods’. I can’t see how this can be when I read the one off purchase rules.

douglasstroud

Hi Frankie
If it is a capital asset and the cost is above £2,000 then yes you can claim the VAT back on the FRS

Frankie

Thank you Douglas. As the Goodwill (Client list) will generate revenue for the buyer for longer than a year I am thinking it can be capitalised. Do you agree?

douglasstroud

Hi Frankie
From what you say it would certainly seem that way

Frankie

Thank you Douglas for your response. My employer has decided that the client cannot reclaim the VAT as goodwill an intangible asset so cannot be reclaimed on flat rate scheme. I do not agree but know this is always a grey area.