It is difficult enough for large corporations with vast legal support, let alone the small owner-managed business expanding its business interests or perhaps even selling to retire.
Apart from the direct taxation issues, which can significantly affect the way a transaction is structured, the VAT implications must be given serious consideration in order to prevent a large VAT bill on completion.
The method of sale will invariably have VAT consequences. Some matters that should be considered:
- The default position is VAT is due but there are exceptions. If there is a transfer of a going concern for VAT purposes mandatory rules apply and any VAT charged might be irrecoverable
- special rules apply to property which need to be considered by both the buyer and seller
- some expenditure is subject to a ten year period of adjustment – this can be obligation can be acquired by the purchaser or be crystallised on sale.
- any sale of shares can result in irrecoverable VAT
- What is the VAT history of the acquisition – HMRC can normally look back four years – are you inheriting a problem?
This isn’t exhaustive but any due diligence needs to consider the VAT consequences and you need to be able to demonstrate reasonable care to HMRC.