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30 November 2021 at 15:42 #55769
Hi. I wonder if someone can give me some VAT advice. I jointly own a commercial property with my brother and am about to buy my brother’s half. We are opted in for VAT and pay VAT each year on the rents received. I am of the undestanding that in regards to VAT it is a going concern and as such VAT is not chargeable on the sale. The tenants will remain the same and going forward I will remove my brother from the partnership and put my wife instead – by completing the VAT2 form. I just want to be sure that this is the correct understanding I have of the situation. My accountant seems to think so but he says he cannot guarantee as he is not a VAT expert. He said it is possible to get legal advice on this which for a fee I can get in writing and then keep on file should there be any future questions from HMRC. Can someone please tell me if this all sounds correct? Many thanks in advance. Dominic30 November 2021 at 21:05 #56210
A transfer of a going concern for VAT purposes is when a business is sold by one organisation to another. Reading your question, I don’t think that is what’s happening here.
Given your mention of the VAT2 form, I’m assuming that you and your brother currently have a partnership VAT registration, and you’ll be removing him and adding your wife. In which case, according to HMRC’s manual https://www.gov.uk/hmrc-internal-manuals/vat-registration-manual/vatreg35200 there won’t be any change to the VAT register – the same VAT registration will be receiving income from tenants before and after the change.
Who has opted to tax the property – you and your brother individually, or the VAT registered partnership? I suspect that it’s the latter – if so a sale of your brother’s share to you can’t really be a supply by the partnership, so wouldn’t be impacted by the option to tax.1 December 2021 at 12:00 #56211
Thanks for your reply Trevor. The building which is a mixed development was set up for VAT by the original developers/builders and my father when he bought it (the 2 ground floor commercial units with 8 flats above which pay ground rent) in 2011 he was told that he had to opt in for VAT. When my dad passed away in 2014, my brother and I inherited it and we also had to opt in for VAT and set up an account with HMRC as a partnership which was what HMRC advised us to do at the time. I recall phoning HMRC back then and explaining the situation and they told me that my brother and I will need to take over as partners in terms of VAT so we actually took over my dad’s acccount – our VAT number is the same as the one he had. So we collect VAT from the 2 tenants and pay it onto HMRC each year. Nothing with the tenants will change, only now I will be buying my brother’s half and instead the building will belong to myself and my wife. So I just want to know what the right thing to do is with regards to HMRC. Thanks1 December 2021 at 12:55 #56212
Thanks for the clarification. I’m assuming that your dad was registered for VAT as a “sole trader”. A sole trader registration can’t just be converted into a partnership registration – see https://www.gov.uk/vat-registration/transfer-registration. This would explain why you and your brother would have needed a new (partnership) VAT registration, the partnership needed to opt to tax the property, and there was an actual transfer of the property from your dad’s VAT registration to the partnership’s – which would have been treated as the transfer of a going concern.
But, I still think the position now is different. The link in my previous post implies that removing your brother from and adding your wife to the partnership won’t require a new VAT registration. In which case there is no transfer of the property between VAT registrations and no new options to tax are needed. Your option to tax would have been made by the partnership, and it will continue to apply to the partnership even if individual partners change.
The transaction between you and your brother wouldn’t appear to be a supply of the property by the partnership, therefore it wouldn’t be affected by the partnership’s option to tax.
So I think all you need to do for HMRC VAT is the VAT2 form to change the partners in the partnership.
However I have been making some assumptions about the arrangements. So if your accountant knows and could recommend a VAT advisor, you may want them to give you a written opinion having seen all the relevant documentation, just so that you have something you can keep on file. I’d imagine it should be relatively straight forward for someone with experience in this area, so shouldn’t be too expensive. Alternatively of course, just printing and retaining a copy of this forum thread would at least show that you took some steps to establish the VAT position, should you need to demonstrate this in the future.2 December 2021 at 14:56 #56213
Thanks again Trevor. What you say makes complete sense to me and I’m happy if this is the case. It does appear that the only change taking place is in the partnership and not in terms of the property and VAT. I have had a look online and I found one VAT legal advisory service where they offer exactly what you are talking about – they will give me a written statement in terms of my position with the VAT and the property but for this they want £600 plus VAT! They say it would be good to keep it on file in case of any future HMRC investigation. But I presume that if my undertading of the situation is, as you have said, then I will be in the clear and if I am not then I will be guilty of not following correct proceedures – which would be fair enough. So I wonder what difference it would make if I had a statement from a legal advisor or not? Or is the idea that I can then claim against the legal advisor? I kind of understand the element of peace of mind this might provide…I just wonder if there might be a legal advisor who might prepare this statement for me for a less than this?3 December 2021 at 13:00 #56214
I’ve always worked as an in-house VAT advisor in the public sector, so I don’t know what the going rates would be for an advisory firm! If you are considering getting paid advice, you could always try a second firm – this may give an indication as to how reasonable the figure you’ve been quoted is.
Generally speaking – when HMRC find errors, they will assess for any VAT underdeclared plus interest. They will also consider charging a penalty, however this can be significantly reduced or even waived/suspended altogether if they believe that you took “reasonable care” to determine the correct VAT treatment, cooperated during their enquiries and (if appropriate) have taken steps to avoid similar errors in the future. Starting a forum thread is certainly an indication of taking care, but it’s possible that going to an advisory firm if you’re still uncertain might be considered better.
Many paid advisors (but not all, so worth checking) are likely to have some form of professional indemnity insurance – it may even be a requirement of any professional bodies that they’re a member of. But I’m not sure whether that would actually cover the VAT itself, as the only real “loss” through following incorrect advice would be any penalty that HMRC may charge.4 December 2021 at 12:15 #56215
Many thanks for your advice Trevor – this is very helpful
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