VAT consequences of business structure change

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I regularly come across situations where a business structure is changed and no thought is given to the VAT consequences of the change. This can then lead to a loss of VAT as well as to penalty and interest charges.

The case studies I have included on this website highlights two examples of this. Two businesses decided to change the structure and/or ownership of their businesses for entirely valid reasons, but the VAT consequences were not properly considered, or advice taken.

For example, in many farming businesses the ownership of assets is often different to the party or parties undertaking the farming activity itself. For example, one individual may own the assets whereas the farming business may be conducted through a partnership, or vice versa. In essence, this means that the farming business cannot recover VAT on the replacement or maintenance of those assets, as it does not own them. The assets are owned, and used, by another legal entity.

Also, be aware that if there is a change of entity that H M Revenue & Customs (“HMRC”) need to be advised of the change within 30 days of it taking place. Failure to do so can result in penalties being imposed. In some cases, HMRC have taken the stance that the new entity has failed to notify a requirement to register for VAT in its’ own right, and have penalised businesses, even though there is no tax loss. The Tax Tribunal has supported HMRC in a number of such cases.


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