VAT Offset Against Debts

Gordy · Postby **Gordy** » Wed Aug 18, 2004 2:41 am

When I started the company I personally lent it a sum of money which was not attributed to any tax line.

We have just sold a part of the company and I now wish to use those funds to repay part of the debt to me.

However, selling those assets incurred VAT. What I would like to know is if there's a way I can offset that VAT against those debts as, as it stands, I will be paying VAT on the sale of assets, but did not claim any VAT on behalf of the company when I lent it the money.

Best regards,
Gordon.

paultaylor@vatease.c · Postby **paultaylor@vatease.c** » Wed Aug 18, 2004 4:18 am

It is not clear what you mean from your question.

If you have sold part of your business that is separately operable, it is possible that you need not have charged VAT on the sale. However, if VAT was chargeable on the sale, then it cannot be avoided simply on the basis that the money raised is to be used to repay a loan.

Provided your business was fully taxable you are entitled to recover VAT incurred on any associated costs, including those relating to the sale of the part of the business.

Regards

Paul Taylor
http://www.vatease.co.uk/

Gordy · Postby **Gordy** » Wed Aug 18, 2004 5:16 am

Hi,

Many thanks for your reply. I think the mistake I may have made was making the sale price inclusive of VAT.

Just to clarify what I mean:

Let's say I lent my company Â£20,000 at some point in the past. The company gets that money in a VAT-free way.

Now that I've sold part of the company for Â£20,000 I wanted to use that to repay the Â£20,000 I lent to the company, but I haven't really got Â£20,000 because VAT needs to be paid to the tax office on the money I received from the sale.

It just seemed so totally unfair that I was sure I had something wrong. Wishful thinking!

paultaylor@vatease.c · Postby **paultaylor@vatease.c** » Thu Aug 19, 2004 2:09 am

Ah.

If your business was worth Â£20,000 you should have sold it for Â£20,000 plus VAT (if VAT was chargeable). The person buying the business would have been able to recover the VAT (if they were registered and the business activity was taxable) so would only have paid Â£20,000.

If you have sold the business for Â£20,000 including VAT then, in effect, you have only sold it for Â£17,021 (plus VAT).

Sorry I couldn't provide you with the answer you were looking for.

Regards

Paul Taylor
http://www.vatease.co.uk/