If you buy a VAT registered business as a going concern, you must be registered for VAT when you buy that business. Provided you are VAT registered, the sale of the business will not be treated as a supply for VAT purposes so no VAT will be charged, and as a result, no VAT can be reclaimed.
If you are just buying the assets of a business, such as stock-in-trade, machinery, goodwill, premises and fixtures and fittings, VAT will be chargeable, although you will be able to reclaim this VAT if you are VAT registered.
VAT registration when you buy a business
A business is a going concern if it is a business that is trading and will continue to trade after it is sold.
If you buy a VAT registered business as a going concern, you must be registered for VAT when you buy that business - at the time of sale.
If you are not registered for VAT, the seller must add VAT to the price you pay for the business as if you were buying the assets alone and you will not be able to reclaim this VAT.
The difference between buying a going concern and buying assets
In contrast to buying a business as a going concern, you buy the assets of a business if you are only buying particular items from that business, or if that business will no longer exist.
If you buy the assets of a VAT registered business and the business itself is no longer trading, or no longer will be trading, VAT on the assets is chargeable and reclaimable. Assets can include stock-in-trade, machinery, goodwill, premises and fixtures and fittings.
Buying a business as a going concern that includes property and capital assets
There are additional steps you may need take before and after you buy a business whose assets include capital assets such as:
- land
- buildings
- civil engineering works
- refurbishments
- computers and items of computer equipment
- related self-supplies
Land and buildings
Freehold sales, leasing, rental and other supplies of land and buildings are normally exempt from VAT. This means that no VAT is payable on these land transactions, but it also means that any of the VAT incurred on associated expenses cannot be recovered.
However, you can opt to tax land and/or buildings for the purposes of VAT. Once you have opted to tax the asset, all sales or other supplies you make of any interest in the asset - eg rental - will normally be standard-rated, and the VAT incurred on any associated expenses would be reclaimable.
Other capital assets
There are additional accounting steps you may need to take after you buy a business as a going concern where the assets of that business include capital items.
Where the value of these items is £250,000 or more, or £50,000 or more in the case of computers and computer equipment, the Capital Goods Scheme (CGS) may apply.
Transferring the existing VAT registration number
You may be able to keep the VAT registration number of the business you acquire as a going concern. If you do so, you will also take on all VAT responsibility of the business you are buying, such as unclaimed bad debt relief and record keeping requirements.
Both the buyer of the business and the seller must agree to the transfer of the VAT registration number, and must both sign a form notifying HM Revenue & Customs (HMRC).
