TOGC: is VAT payable on purchase of pizza business?
My client formed a limited company to take over the trading of a take-away pizza outlet in a busy town centre. The existing owner is charging £30,000 for the business, which is mainly for goodwill (£20,000) and equipment (£5,000).
I am satisfied that the deal qualifies as a TOGC, but there is a complication with VAT registration. My client does not want to register because he intends to reduce the trading days with the new venture, focusing on weekend activity. His expected sales in the next 12 months are £52,000; the current owner is open six days a week and annual sales have been £95,000.
My thinking is that my client must register for VAT from the first day of trading, but his company does not need to have been issued with a VAT number by HMRC before the completion date to avoid being charged VAT on the £30,000 payment, only to have applied for a number from HMRC. Is this correct?
Is there any problem with my client deregistering after perhaps, say, one month of trading, on the basis that expected sales in the next 12 months thereafter will be less than £88,000, ie the deregistration limit? Three months of depreciation will take the market value of the equipment to less than £5,000, avoiding an output tax liability on the final return. Is my thinking correct?
Query 20,675– Francesco.
Long-term residency
My client is an individual who is not UK domiciled in the common law. In particular, she was not domiciled on 30 October 2024. She arrived in the UK for the first time in 2017-18, becoming resident in that year. She was married in that year to an individual who was UK domiciled in the common law. Her husband died in 2021-22. The couple had no children, and she inherited his estate (which was valued at about £1m). She made a valid election to be treated as UK domiciled from the time of his death to access the inheritance tax unlimited spouse exemption.
In 2025-26, my client decided to leave the UK to return to her home country and she became non-UK resident in that year. As I understand it, her elective UK domicile status converted into a long-term UK resident (LTR) status on 6 April 2025, and that status will lapse on 5 April 2030 (ie after four complete years of not being UK resident).
However, I wonder whether my client might shed that status from 6 April 2026 under the transitional rule (TR) in FA 2025, Sch 13 para 46. I think that the TR would override the LTR status of an individual during the time that they are treated as continuing to be LTR, under the so-called ‘tail rule’ (IHTA 1984, s 6A(2)(b)) – which does not apply to my client; but is the TR strong enough to override her elective LTR status? Also, could readers confirm that the TR cannot, in terms, treat my client as having shed her elective LTR status on 6 April 2025?
Query 20,676– Hopeful.
Floored
We have a new client who is a supplier of carpets and flooring, both to the public and also to a residential property development company. The client has provided us with his sales invoices and the query relates to the supply of carpets and floorings to the property developer.
The property developer constructs new dwellings. Leaflet 708, Buildings & Construction, section 3.1.2 refers to the fact that ‘your services can be zero rated when all of the following conditions are met …’ and goes on to deal with a qualifying new dwelling being constructed, etc.
Our client appears to be providing and installing carpets in newly completed dwellings prior to their first supply by the developer and also floor coverings such as vinyl, as well as providing screeding of the floors. To our surprise, the client is charging VAT on the entirety of the supplies he makes. Our understanding is that the supply of floor screeding and vinyl floor coverings, for example, is zero rated in these circumstances, as is the fitting of carpets, although the supply of the carpets themselves is standard rated, even if the other conditions for zero rating are satisfied.
We have spoken to the developer and he understands that he is unable to reclaim VAT on the carpets supplied to him when he sells the new dwelling.
Clearly, standard-rated VAT being charged on all goods and services supplied to the developer does not appear to accord with the leaflet. However, the leaflet at 3.1.2 states ‘Your services can be zero-rated.’ It does not state that your services must be zero rated.
Is our client’s treatment correct here, or should he go back and zero rate the zero-rated elements of the floor covering supply to the developer? Readers’ responses would be appreciated.
Query 20,677– Carpetbagger.
Deferred income
My client runs a gym/treatment room. She sells blocks of sessions that clients may attend with different self-employed instructors or therapists, who are entitled to 60% of what the client pays; the gym’s share is treated as revenue when the client has used the service. At any time, there is a large amount in creditors, which in due course will be paid out to instructors or credited to revenue. The client wants to incorporate the business; the company will naturally honour credits then held by clients. It seems logical to simply transfer the creditor to the company’s opening balance sheet and to recognise it as corporation tax revenue in the same way that it would have been recognised before, but do readers see any unexpected catches here? I am more familiar with transferring assets on incorporation, and the transfer of a liability might be different.
Query 20,678– Jam Tomorrow.
