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Where Taxpayers and Advisers Meet

VAT registration and incorporation

SpartanFD
Posts:8
Joined:Tue Aug 23, 2016 9:02 am
VAT registration and incorporation

Postby SpartanFD » Tue Aug 23, 2016 9:14 am

Hi

I've been asked to join an SME which has been running as a sole trader for c.1-2 years with a view to implementing a number of new financial systems and turning it into a more professional outfit. As I understand it, the business is currently VAT registered with c.£300k t/o p.a. The current proprietor has suggested winding down the sole trade (paying up creditors, completing final self assessment tax return, etc) and incorporating a new limited company to start a fresh (which I will acquire a share in).

My question is this - incorporating a sole trade obviously requires VAT registration to be either transferred / the new company to register. However, if the proprietor winds down the sole trade and starts a new business with me (new registered office, new capital structure, new agreed contracts with suppliers, etc) then what are the VAT implications? Can I simply start a new business and not register until the threshold is breached on the LTM lookback or 3M lookforward tests?

Any info would be much appreciated.

Best
Kris

les35
Posts:635
Joined:Wed Aug 06, 2008 3:09 pm

Re: VAT registration and incorporation

Postby les35 » Tue Aug 23, 2016 9:54 am

It does sound like a TOGC, whilst bringing you into the company at the same time. If NewCo is effectively taking over the business of the sole trader, then the previous taxable turnover counts towards the VAT registration of NewCo. Your post mentions some details, but the legislation (and case law) tends to look at the overall arrangement.
The alternative, in my view, is quite tricky, since you would need to shut down the sole trader business, and then start something entirely new. I am not sure of the benefits of doing that. And you might still end up inviting attention from HMRC.

SpartanFD
Posts:8
Joined:Tue Aug 23, 2016 9:02 am

Re: VAT registration and incorporation

Postby SpartanFD » Tue Aug 23, 2016 10:48 am

Les, appreciate you getting back to me so quickly. It sounds like it might be tricky (if not impossible) to avoid registration / transfer of registration.

My primary concern was to prevent any association with the previous entity or its tax history (since I am coming in fresh now at a point when quality of practices cannot be guaranteed for the last two years). A new VAT registration number might be the best way to solve that but then if HMRC consider it to be a TOGC as you mention above, that could all be in vain?

les35
Posts:635
Joined:Wed Aug 06, 2008 3:09 pm

Re: VAT registration and incorporation

Postby les35 » Tue Aug 23, 2016 11:57 am

To protect yourself personally, I would advise:
1. do not retain the old VAT registration number; and
2. make sure there is a formal written contract between yourself and the other party, so that any pre-transfer issues stick with him/her. This might cost some money with a Solicitor, but it might help in the event of a future falling out!


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