Legal advice: Ongoing concerns

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A recent case before a London Tax Tribunal will be of interest to those entering into new business opportunities in the licensed trade. The premises...

A recent case before a London Tax Tribunal will be of interest to those entering into new business opportunities in the licensed trade. The premises in question was a pub which had once included bed and breakfast accommodation and takeaway food.

The pub had been open every day but fell on hard times. The business was frittered away, the stock was run down and the building deteriorated. The landlord took the premises back and offered it on the market under a new lease.

A Mrs Harrild showed an interest in the premises. There were no accounts of the previous business for her to inspect and there was no usable stock in the pub.

Because of the dilapidated state of the building, she was granted a one-month rent-free period. It represented a complete new start for her, as she took over no staff from the previous business and had to negotiate new contracts with suppliers, because of the bad credit record of the previous tenant.

Imagine Mrs Harrild's surprise when Customs & Excise, as it used to be called, told her she should have registered for VAT. It made a compulsory registration, served notice of assessment and charged her with a penalty for non-registration.

A business purchaser is normally quite happy to agree that there will be a transfer of a going concern. This means that the vendor does not charge VAT on the price, the other side of the coin being that the purchaser has to register for VAT and warrant that he will carry on the same business. Mrs Harrild, however, does not seem to have been in a contractual relationship with the previous tenant.

You will be pleased to hear that Mrs Harrild's appeal was allowed by the tribunal. The worrying aspect, however, is that, even though the outgoing tenant did not transfer any goodwill and Mrs Harrild paid her nothing for the business or stock, the tribunal still believed that there might have been a transfer of a going concern.

This was despite the fact that there was no contract whatsoever between the two of them and the previous tenant's business had run down to virtually nothing. Happily, the other circumstances, including the fact that the bed and breakfast accommodation and takeaway facility had not continued, counted in her favour and the tribunal ruled there was no continuity and no transfer of a going concern.

Anyone in a similar position to Mrs Harrild should take tax advice. If you believe that your annual turnover will approach or exceed the current minimum level for registration of £61,000, then you should register for VAT.

Related topics Legislation

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