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There has been an important change to the rules on VAT records in
connection with transfers of a going concern (TOGC). The new rules
came into effect on 1 September and apply to all contracts made on or
after that date. Under the old (pre-September) regime the seller was
obliged to pass the VAT record of the business to the buyer (unless the
seller got a direction from HMRC that he could retain the records).
In
practice, it would often be difficult for a seller to separate out VAT
records for the business being transferred from the VAT records of the
business being retained (especially so when it is only part of a business
that is being sold). As a result, it was traditional for the seller to get a
direction from HMRC enabling the seller to retain the VAT records. This
would normally be granted, unless the buyer was taking over the seller’s
VAT registration number (rare).
As from 1 September, the situation is made more simple. If the buyer
takes over the seller’s VAT registration number (which is rare) then the
seller will have to transfer the VAT records to the buyer (unless a
direction is obtained from HMRC). In practice, that is likely to be unusual
and the normal situation will be that the buyer does not take over the
seller’s VAT registration number. In that case, the seller will then retain
the VAT records (for a minimum period of six years). New statutory
provisions allow the buyer to gain access to the VAT records of the
business from the seller, if required.
In summary, in the vast majority of cases involving a TOGC there will no
longer be any need for the seller to get a declaration from HMRC allowing
the seller to retain the VAT records of the business. Instead, the seller
will normally be able to retain those (but will have to keep them for six
years so that they are available to the buyer).
The excellent practicallaw.com Property Service suggests that it is useful
to include in all TOGC transfers a clause stating whether the seller and buyer ‘do’ or ‘do not’ intend to make a joint application for the buyer to
be registered for VAT under the seller’s VAT number. It seems a useful
suggestion: by inserting that as a standard clause it will focus
everyone’s mind on the record-keeping issues that arise in any TOGC.
See VAT (Amendment) (No 5) Regs 2007. Source: www.practicallaw.com (subscription service). © Practical Lawyer
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September 2007 |
