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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.
HMRC may ask questions why you would require a separate company. One possible view they might take is that creation of the new company is a deliberate attempt to avoid registration (especially as you are a 50% owner) and compulsory register you. see detailed answer here: http://vatforum.co.uk/viewtopic.php?id=41
I would strongly advise you to seek the advice of an accountant (or even HMRC) before you start trading with the second company (HMRC can and do backdate registrations).
As an agent, you can act in own name (as an undisclosed agent) or in the name of its principal (as a disclosed agent).
The VAT treatment of the sales depends on the type of agency applying as described in HMRC’s VAT Notice 700: The VAT Guide at sections 22.5 (disclosed agent) and 22.6 (undisclosed agent).
For a disclosed agent, there should be an invoice from the principal to the customer. VAT is then the responsibility of the principal. It should be clear that you are selling as Agent, then output tax is due only on your commission.You should draft a simple agreement between the parties; and make sure your marketing or website indicates that the sale is on behalf of a third party.
To quote VAT Notice 700 at section 22.5 (“Agents acting in the name of their principals”):
“As an agent, you may sometimes take a minor role in a transaction, and simply introduce your principal to potential customers or suppliers (third parties). At other times you may be more closely involved. You might:
– receive or deliver goods;
– hold a stock of goods for your principal; or
– make or receive payment.“However, provided that the invoicing for the supply is between the principal and the customer, the only supply for VAT purposes being made by you will be the provision of your services to your principal.”
For an undisclosed agent, where you could sell as Principle on a Sale or Return basis; you would be liable to output tax on the full selling price. Section 22.6 of the VAT Guide says:
“If you issue an invoice in your own name for a supply of goods which you arrange for your principal then for VAT purposes only, you must treat the transaction as though it was both a supply to you and a supply by you.”
The recent Greenisland Football Club First Tier Tribunal case sheds more light on HMRC’s approach to zero rating for the construction of new ‘relevant charitable purpose’ (RCP) buildings.
The legislation provides for zero rating for such buildings, and defines RCP:
(6) Use for a relevant charitable purpose means use by a charity in either or both the following ways, namely—
(a) otherwise than in the course or furtherance of a business;
(b) as a village hall or similarly in providing social or recreational facilities for a local community.
HMRC also argued that Greenisland was operating a business, since the building generated income. This is a simple failure to understand a Village Hall. A Village Hall usually does generate income for room hire, from regular User Groups and often private bookings. This ‘business activity’ does not breach the RCP test in Note 6(b) above (Rental income does breach the RCP test in Note 6(a).) ie you don’t need to worry about any business use for a village hall.
if you need clearance, get a ruling from the HMRC Charities Unit.
The registration on the future test does, however, have an immediate effect as you correctly pointed out. It means all supplies after the date the registration should be effective are deemed to include VAT, whether explicitly charged or not.This future test is really to catch substantial orders. Consequently you must notify HMRC within 30 days from today and you must be registered for VAT from today. The VAT number will be issued later.
While it is tempting to issue VAT invoices with ‘VAT number applied for’ instead of a VAT number, this is technically in breach of the law. No mention can be made of the amount of VAT charged unless the trader is registered, and at the date of issue of the invoice, you are not.
Therefore you can’t charge or show VAT on your invoices until you get your VAT number. However, you’ll still have to pay the VAT to HMRC for this period. You should increase your prices to allow for this without specifically stating that the amount charged is VAT and you tell your customers why. Once you’ve got your VAT number you can then reissue the invoices showing the VAT.
HMRC understand there are many businesses that are artificially split to avoid VAT and hence will consider this to be a single business if the two businesses have “Financial, economic and organisational”links which is base on the legislation (VATA 1994, Sch 1, para 1A; FA 1997, s 31) which states the following:
“1A(1) – Paragraph 2 below is for the purpose of preventing the maintenance or creation of any artificial separation of business activities carried on by two or more persons from resulting in an avoidance of VAT.
2 – In determining for the purposes of subparagraph 1A above whether any separation of business activities is artificial, regard shall be had to the extent to which the different persons carrying on those activities are closely bound to one another by financial, economic or organisational links.”
For further details on what these links mean you can check on the legislation above but in simple language:
(i) Financial links – one business should not be providing financial support to the other business or have common financial interests.
(ii) Economic links means the businesses should not service same customers or have same economic objectives nor should the activities benefit each other.
(iii) Organisational links – the businesses should not use the same equipment, employees, management, premises etc.If your business have these links, HRMC may issue the following based on the above anti-avoidance measure:
(a) A direction- accept two businesses but from now on both under one VAT account. No retrospective VAT
(b) Alternative – Retrospective VAT registration and concludes business should have always operated as one;you will then be required to pay penalties and interest etc for unpaid VAT.Recommendation
Clarify HMRC’s view if your business have significant links,try to separate business as much as you can if you do not want to be caught with this anti-avoidance legislation, or if issued with a directive you can appeal- remember HMRC is not always right through one can only be successful if HMRC is unreasonable with respect to these kind of cases etcFood for thought!
A recent case relating to Mr & Mrs Belcher who traded as a barber shop from 1991 and his wife as a ladies hairdresser from 1997 to 2005 using the same premises , banking the sales in one account, both businesses were included as one in a partnership return, with both spouses named as partners. HMRC’s viewpoint was the businesses were single entity for VAT and this was supported by aspects on the Belcher’s businesses. However couple appealed and won the appeal based on:
The judge found the following facts:– Separate Cash flow: businesses paid for cash expenses separately from their respective tills;
– Staff Management: hiring and firing was done independently; and
– No Partnership:Though partnership returns were files, the key point was that there had been ‘no conscious intention to run a single business in partnership’Many tax advisers were surprised with the decision of the appeal. However the case still illustrates that separate entities need to take into account all factors to create independent businesses, and commercial reality must clearly indicate that separate entities are in place. Any transgressions will result in HMRC almost certainly challenging the separation, either from a current date or, in some cases, retrospectively.
VAT relating to promotional work is quite complex. However here are quick summaries of how each of the items you listed is treated for VAT purposes:
• Discounts – VAT charged on the discounted price (not the full price)
• Gifts – No VAT on <£50 pa gifts. >£50 pa, VAT charged on the gift’s full value.
• Multi-buys – VAT charged on the combined price if all the items have the same VAT rate. If not, VAT is ‘apportioned’ as mixed-rate goods
• Money-off coupons, vouchers etc – no VAT due if given away free at time of a purchase. If not, VAT due on the price charged
• Face value vouchers that can be used for more than one type of good or service (multi-purpose)- No VAT due, if sold at or below their monetary value
• Face value vouchers that can only be used for one type of good or service (single-purpose)- VAT due on the value of the voucher when issued
• Redeemed face value vouchers – Charged on the full value of the transaction at the appropriate rate of the goods provided in return for the voucherSPV is a voucher that can be redeemed against goods or services of one type which are subject to a single rate of VAT. All other vouchers are considered MPVs. VAT is accounted for on an SPV when issued, as opposed to when redeemed as is the case with an MPV.
Hope this helps
You are not required to register for VAT as your business turnover is below £85,000. However uou can register voluntarily for VAT. You must pay HMRC any VAT you owe from the date they register you. For small business selling to the public there is usually no advantage of registering voluntarily given the VAT administration costs- filing returns, penalties if not done properly, accountants’ fees etc.
However there’s no threshold if neither you nor your business is based in the UK. You must register as soon as you supply any goods and services to the UK (or if you expect to in the next 30 days). This is meant to catch foreign suppliers like Chinese sellers on Ebay or App sellers making millions from UK buyers yet most UK sellers have to add VAT to their sells.
HMRC understand there are many businesses that are artificially split to avoid VAT and hence will consider this to be a single business if the two businesses have “Financial, economic and organisational”links which is base on the legislation (VATA 1994, Sch 1, para 1A; FA 1997, s 31) which states the following:
“1A(1) – Paragraph 2 below is for the purpose of preventing the maintenance or creation of any artificial separation of business activities carried on by two or more persons from resulting in an avoidance of VAT.
2 – In determining for the purposes of subparagraph 1A above whether any separation of business activities is artificial, regard shall be had to the extent to which the different persons carrying on those activities are closely bound to one another by financial, economic or organisational links.”
For further details on what these links mean you can check on the legislation above but in simple language:
(i) Financial links – one business should not be providing financial support to the other business or have common financial interests.
(ii) Economic links means the businesses should not service same customers or have same economic objectives nor should the activities benefit each other.
(iii) Organisational links – the businesses should not use the same equipment, employees, management, premises etc.If your business have these links, HRMC may issue the following based on the above anti-avoidance measure:
(a) A direction- accept two businesses but from now on both under one VAT account. No retrospective VAT
(b) Alternative – Retrospective VAT registration and concludes business should have always operated as one;you will then be required to pay penalties and interest etc for unpaid VAT.Recommendation
Clarify HMRC’s view if your business have significant links,try to separate business as much as you can if you do not want to be caught with this anti-avoidance legislation, or if issued with a directive you can appeal- remember HMRC is not always right through one can only be successful if HMRC is unreasonable with respect to these kind of cases etcFood for thought!
A recent case relating to Mr & Mrs Belcher who traded as a barber shop from 1991 and his wife as a ladies hairdresser from 1997 to 2005 using the same premises , banking the sales in one account, both businesses were included as one in a partnership return, with both spouses named as partners. HMRC’s viewpoint was the businesses were single entity for VAT and this was supported by aspects on the Belcher’s businesses. However couple appealed and won the appeal based on:
The judge found the following facts:– Separate Cash flow: businesses paid for cash expenses separately from their respective tills;
– Staff Management: hiring and firing was done independently; and
– No Partnership:Though partnership returns were files, the key point was that there had been ‘no conscious intention to run a single business in partnership’Many tax advisers were surprised with the decision of the appeal. However the case still illustrates that separate entities need to take into account all factors to create independent businesses, and commercial reality must clearly indicate that separate entities are in place. Any transgressions will result in HMRC almost certainly challenging the separation, either from a current date or, in some cases, retrospectively.
