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Vat Registration issues on an Acquisition

By CronerTaxwise

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Q. I have recently accepted a new client, a husband and wife partnership, which was set up to acquire a dry cleaning shop as a going concern and at the same time to buy the goodwill and customer list of a clothing alteration business.

In the 12 months prior to the transfer the turnover of the dry cleaning business was £55,000, whilst the clothing alteration business only turned over £35,000 and neither were VAT registered. The partnership has been trading for three months without registering for VAT and I am concerned that because the combined turnover of both activities exceeds the VAT registration limit they should have notified HMRC and been registered from day one.

A. The law governing the requirement to register for VAT following the transfer of a going concern is contained within Section 49(1) VATA 1994 and depends on whether the seller was a “taxable person”; that is either VAT registered or required to be.

If you acquire a business as a going concern from such a taxable person who was trading above the VAT registration limit, then as the purchaser you are required to VAT register from day one of the transfer. If you acquire a business from a taxable person who was registered voluntarily, that is below the registration limit, you have to treat yourself as the person carrying on the business both before after the transfer and continue to monitor the turnover on a rolling 12 month basis to determine if and when you should register.

However, in the case of your client, if you acquire a business from a person who was neither VAT registered nor required to be registered, you get a fresh start and would begin to monitor your turnover on a 12 month basis beginning on the day of the transfer and not before. This applies if you acquire separate businesses from unconnected sellers, even if the combined turnover of the previous 12 months trading would be above the VAT registration limit.