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Where Taxpayers and Advisers Meet

VAT on moving from sole trader to ltd company vehicles

raymonddaf
Posts:2
Joined:Wed Apr 27, 2022 12:56 pm
VAT on moving from sole trader to ltd company vehicles

Postby raymonddaf » Wed Apr 27, 2022 1:15 pm

So im a sole trader and in the coach and limo industry.

On the coach side its zero rated (as more than 10 passengers) so i claim back input vat 20% on any purchase and charge vat on any coach hires at 0%
For the limo (which only has 8 seats) i claim input VAT 20% but also charge 20% output.

Now i am basically changing from a sole trader to a ltd company so need to sell the assets from the sole trader to the ltd company (and as of yet i have not done any vat returns ever from the sole trader side, as it was only set up for VAT a few months ago and i need to do my first VAT return in the next week).

So im not sure which is correct here:

I claim back the input VAT as a sole trader at 20% but when i sell to the ltd company do i put the sale through as:
A. 0% on the coaches but 20% on the limo (as im zero rated or does this only apply to my actual sales to customers?)
B Or does it need to be 20% input and 20% output charge on both (as its a sale from sole trader to ltd and not a sale as in me charging a customer?)

Secondly if option B is correct I have owned 1 coach for 3 years, one for 2 years and the limo for a few months so do i:
A. Sell to the ltd company at the price i paid originally lets say it totals 100K so VAT on both sides will be 20% (£20K).
B Or do i sell at a reduced price as the vehicles are older so ie I claim back 20% of the 100K paid as a sole trader (£20k) but i charge less for example £80k to the ltd company (£16k in vat), meaning im up £4k, this is obviously the better option financially and im assuming the correct method as the vehicles will have reduced in value.

Any help would be appreciated as my accountant is not the most forethcoming with this info, and to be honest i think he wants to do whatever is easier for him rather than financially correct for me. I plan to change to a new accountant as soon as this is all dealt with, but need to stock with him for now.

robbob
Posts:3228
Joined:Wed Aug 06, 2008 4:01 pm

Re: VAT on moving from sole trader to ltd company vehicles

Postby robbob » Wed Apr 27, 2022 4:45 pm

The default is this will be a Transfer as a going conern so there is no vat on the items being transferred - you need to ensure new business is vat registered in time

New business may choose to take over old vat number and everything carries on as it was (eg if on cash accounting no hassle of acounring for debtors on final vat return blah) or it may be new vat number.
Its vital you ensure proper documentation is doen and submitted on time - be prepared for hmrc to very tardy - highly recommend online application is done !

https://www.fkgb.co.uk/insights-and-facts/transfer-of-a-going-concern/

A transfer of a business as a going concern (TOGC) however is the sale of a business including assets which must be treated as a matter of law, as ‘neither a supply of goods nor a supply of services’ by virtue of meeting certain conditions.
Where the sale meets the conditions, the supply is outside the scope of VAT and therefore VAT is not chargeable.

If acountant can't help here you probably want new accountant sooner rather than later as this is bread and butter item for them to assist with - perhaps they are old skool acountant who doesnt do vat.

raymonddaf
Posts:2
Joined:Wed Apr 27, 2022 12:56 pm

Re: VAT on moving from sole trader to ltd company vehicles

Postby raymonddaf » Wed Apr 27, 2022 9:59 pm

Theyre not doing it as a Transfer as a going conern. Sole trader and Ltd company both VAT registered a start of Dec (different VAT numbers).
I have now ceased trading from 5th April as a sole trader and started trading from 6th April as the Ltd company.
They are in the process of completing the VAT return on the sole trader and advised me they would sort the assets out in a few weeks as the owner (the accountant thats doing it) is on holiday for 3 weeks.

So they are basically going to sell the assets from sole trader to Ltd company.
From what i wrote in the original post what option is correct? if any.

Yes definately moving to a new accountant as they leave everything to the last minute ask any questions and its like im hassling them and i should just let them get on with it. Not an old school accountant speaking to him sounds like he knows his stuff but just doesnt want to explain to me how hes going about it and any time you call or mail its short and sweet answers. I honestly think they have far too many clients and just do the minimum for each so only interested in their own profits and not taking time to help or advise. Problem is i need this change to go through now so cant pull the plug with them until its all complete.

robbob
Posts:3228
Joined:Wed Aug 06, 2008 4:01 pm

Re: VAT on moving from sole trader to ltd company vehicles

Postby robbob » Thu Apr 28, 2022 8:14 am

Hello raymond
Theyre not doing it as a Transfer as a going concern. Sole trader and Ltd company both VAT registered a start of Dec (different VAT numbers).
You are highly likely wrong in your assumption here - (i can't be certain obviously without full chapter and verse details of what transfer is) - TOGC (Transfer as a going cocnern) has nothing to do with whether you keep the same vat number so the lack of same vat number means nothing (accountants will confirm that fact if you check)- if the trade and assets of one vat registered business are going top another the TOGC rules will likely be mandatory and no vat should be charged.

There is danger here a junior who does understand the TOGC rules is advising you they may be telling you crapola or being silent on things they should be spelling out clearly.


Please urgently read the specific guidance linked below 1.4 clearly lays out the rules and vat helpline will confirm if you have any specific questions this should be very black and white TOGC i woudl expect - if your acountants are saying otherwise do not trust them - ask them to double check and/or please get second opinion
The guidance below will hopofully fcat check what i am saying here.

If your accountants seem clueless i would highly recommend not using them to submit your vat return! - if they have got it wrong here perhaps give them chance to realise their mistyake and up their game and restore confidence. 1.4 below is clear accountants have to be idiots almost of they are not advising you correctly ! - obviously i am not sure if you are tring to do this yourslef without paying them for advise -if that is the case stay well clear of DIY vat transfers and pay your accountant to get it right!!!

Ps feel free to PM me if you need specific help.

https://www.gov.uk/guidance/transfer-a-business-as-a-going-concern-and-vat-notice-7009#para1-4


2.1 Why it is important to get the tax treatment right
The TOGC rules are compulsory. You cannot choose to ‘opt out’. So, it’s very important that you establish from the outset whether the business is being sold as a TOGC. Incorrect treatment could result in corrective action by HMRC which may attract a penalty and interest.

If all the conditions in paragraphs 1.4 and 2.2 are met, the TOGC rules apply and VAT must not be charged or accounted for on the assets transferred (except, in certain circumstances) on the premises, for example, land or property used in the business. Details of the circumstances in which you must charge VAT on the premises are set out in paragraph 2.3.



https://www.gov.uk/guidance/transfer-a-business-as-a-going-concern-and-vat-notice-7009#para1-4
1.4 TOGC for VAT purposes
Normally the sale of the assets of a VAT-registered business, or a business required to be VAT registered, will be subject to VAT at the appropriate rate. But if you sell assets as part of a business which is a going concern then, subject to certain conditions, no supply takes place for VAT purposes and no VAT is chargeable.

It’s important to be aware that the TOGC rules are mandatory and you should establish from the outset whether the sale is a TOGC. It does not matter if your sale of assets would otherwise be treated as exempt or zero-rated as there can still be a TOGC if the conditions are met.

For there to be a TOGC for VAT purposes, all of the following must apply:

the assets, such as stock-in-trade, machinery, goodwill, premises, and fixtures and fittings, must be sold as part of the TOGC

the buyer must intend to use the assets in carrying on the same kind of business as the seller - this does not need to be identical to that of the seller, but the buyer must be in possession of a business rather than simply a set of assets

where the seller is a taxable person, the buyer must be a taxable person already or become one as the result of the transfer

in respect of land or buildings which would be standard-rated if it were supplied, the buyer must notify HMRC that they have opted to tax the land by the relevant date, and must notify the seller that their option has not been disapplied by the same date

where only part of the business is sold it must be capable of operating separately

there must not be a series of immediately consecutive transfers of the business
1.5 When it is not a TOGC
There are sales which fail to meet the conditions in paragraph 1.4. These include, but are not limited to:

the buyer does not:

continue the business and absorbs the assets itself

intend to use the assets to continue the same kind of business as the seller

the buyer is not registered for VAT or required to register as a result of the transfer

there is no supply made, which could include situations such as changes in the constitution of a partnership

there has been no transfer of assets so there is nothing to which the TOGC provisions can apply

instances where a limited company is passed from one person to another via the transfer of shares, but the assets still belong to the limited company - there is no change in the ownership of the assets so no supplies to which the TOGC provisions could apply

where a VAT-registered farmer transfers his business as a going concern to a farmer who is certified under the Agricultural Flat Rate Scheme there can be no TOGC for VAT as the buyer is not registered or registerable for VAT

If you’re registered for VAT but you have not yet made taxable supplies, the transfer of your business might not be the transfer of a ‘going concern’. But, where enough preparatory work has been undertaken prior to making taxable supplies there will be a business capable of being transferred as a going concern.

Section 6 gives more details on transfers of property, some of which are transfers of businesses as a going concern.


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