If a transfer of a going concern is from a VAT registered trader to a new owner who is not VAT registered then it is possible to apply to transfer the registration number of the previous owner to the new owner. This would also transfer to the new owner the responsibility for the past VAT history of the old business. Thus, if the previous owner had committed any VAT misdemeanours, the liability for those would transfer to the new owner of the business.
As a result it is not wise to apply to transfer the VAT registration number between old and new owners unless of course, it is a situation where there is a very close connection between the two. For example, when a sole tradership is being incorporated, i.e. from sole trader to a company, the company being owned wholly by that sole trading individual.
Both parties must agree to transfer the VAT registration number using a form VAT 68. SI 1995/2518, Reg 6(1) If the VAT registration number is not transferred then the new owners do not have any responsibility for the VAT affairs of the previous owner of the business. In general terms this is probably the best way to structure the transfer of a business,
i.e. by not also transferring the VAT registration.
You need to complete a VAT 1 and a VAT 68. Complete a VAT 1 for the company applying to be VAT-registered and a VAT 68 applying for the sole trader VAT number to be transferred to the limited company.
As long as VAT returns are up to date, I doubt whether the VAT office will be unduly bothered.