option to tax

[rav147]

I assume the buyer hasn't continued the same business as the previous owner which is why the TOGC rules are disputed by HMRC?

Where VAT free TOGC treatment is incorrectly applied to a taxable supply, the seller will be assessed by HMRC with penalties and interest. The seller is likely to attempt to obtain the VAT payment from the buyer. The buyer should check whether they can recover the VAT.

The buyer would also have underpaid SDLT.

It is the exact same business.

Reason for TOGC rules not being met is OTT not submitted by the relevant date

[les35]

The submission of the OTT by the specific date is a condition of a TOGC where the Vendor has opted to tax.
So a failure to submit in time renders it not a TOGC, so the supply is taxable.

[VMD]

The vendor should have checked your option to tax was in place before completing the TOGC. Depending on what the contract says they may have to take 1/6 of the sale price as VAT. It was up to them to get the VAT treatment right. As long as you OTT before your own transactions you will be able to claim it back.

[rav147]

The submission of the OTT by the specific date is a condition of a TOGC where the Vendor has opted to tax.
So a failure to submit in time renders it not a TOGC, so the supply is taxable.

thanks for your reply. So what happens now?

the supply is taxable - what does HMRC do? send a letter? to seller or the buyer?

if the buyer has to pay the VAT then can the buyer reclaim the VAT assuming the buyer has OTT and is VAT reg and carrying on a business of leasing commercial property to commercial tenants?

[les35]

If HMRC rule there is no TOGC, then they can assess the Vendor. The Vendor can raise a VAT-only invoice to the purchase, who will reclaim it, since he has opted to tax.

But things are not always so smooth! (1) if the contract does not allow the Vendor to request further consideration, then they will have to pay the VAT at 1/6th of the consideration. (2) the contract might contain provision that one party pays the VAT penalties of the other party.
You can't always predict how HMRC will deal with these matters!

[rav147]

If HMRC rule there is no TOGC, then they can assess the Vendor. The Vendor can raise a VAT-only invoice to the purchase, who will reclaim it, since he has opted to tax.

But things are not always so smooth! (1) if the contract does not allow the Vendor to request further consideration, then they will have to pay the VAT at 1/6th of the consideration. (2) the contract might contain provision that one party pays the VAT penalties of the other party.
You can't always predict how HMRC will deal with these matters!

Thanks for your reply.

As the purchaser my main concern is weather the purchaser can get the VAT back. Ideally we would never have to pay it but if we really have to then can we get it back?

The answer seems to be YES - we can claim it back as long as we OTT and are vat reg. Even if the OTT is belated, I still think we can claim back the VAT. This is good news.

if this turned out to be 1/6th of the purchase price that would be really great!!!

if it is 20% on top of purchase thats ok as long as we get it back

We don't know how HMRC will act but atleast this lets us breathe again

Thanks