Selling your business
Generally, the sale of a business is not liable to VAT. This is intended to make it easier for a person to take over a business, as otherwise there would be a large sum payable by the purchaser in respect of VAT on the entire assets of the business. While this VAT could eventually be reclaimed by the purchaser, it is better not to have to pay it in the first place! The law provides that:
- Any transfer of ownership of goods;
- In the course of the transfer of a business or part of a business;
- From one person registered for VAT to another person registered for VAT;
is not to be a supply for VAT purposes. Similar provisions apply regarding the transfer or sale of goodwill or other intangible assets.
It is important for anyone purchasing a business, or some of the assets of a business, to be sure that no VAT has been charged. If VAT has been invoiced by the vendor, the purchaser should check with the Revenue District office whether this is correct, in the circumstances. If any VAT is paid incorrectly by a purchaser to a vendor, it will not be possible to reclaim this through the VAT return, as it is deemed that no supply has taken place.
See a comprehensive guide to the VAT issues involved in selling or transferring a business.
Set out below are a number of common questions, and brief answers to each ( The word 'transfer' is used to mean sale and similar transactions):
Is the sale of a business only free from VAT if it is sold as a going concern?
It is not a requirement that the business must be transferred as a going concern. The business may have ceased trading prior to transfer, or the purchaser may use the assets to carry on a different type of business following transfer. However, the purchaser must use the goods or services supplied for the purposes of a taxable business, and not simply for resale.
Is it necessary for the whole business, or all the assets of the business, to be transferred together?
It is not necessary for all the assets to be transferred together. However, the goods or services actually transferred must constitute an amalgam of assets capable of assisting in the realisation of the business of the purchaser, and must be intended for use for the purposes of his or her taxable business. In addition, the amalgam of assets transferred must constitute an undertaking or part of an undertaking capable of being operated on an independent basis. The transfer of a single asset, such as plant & machinery, is likely to be considered as the simple sale of that asset, and subject to VAT.
Where the business or part of a business of an Irish taxable person is transferred to a taxable person in another E.U. Member State does the exemption from VAT apply?
No, the exemption only applies where both the vendor and purchaser are registered for VAT in Ireland. Each part of the supply in this situation would be liable to VAT indepently of the others. For example, a supply of stock or equipment to a company registered for VAT in another Member State would be an intra-Community supply of goods, the supply of rights to use a company name or logo would be a Fourth Schedule service, and so on.
If the sole asset of a company is a site of land or a building, will the transfer of the land or building qualify for the exemption from VAT?
The relief from VAT applies to supplies made in the course of a transfer of a business or part of a business that is capable of being operated on an independent basis. The mere sales of sites or vacant buildings is not such a transfer, and would be liable to VAT, subject to the normal property rules.
Where a partner in a partnership transfers his interest in the partnership to a third party who then becomes a partner with the continuing partner, will the transfer of the share in the partnership be free from VAT?
In the case of a partnership where a partner exits the partnership and sells out to a new partner, this constitutes the transfer of a business and there is no VAT liability. In the case of a co-ownership of a property, the sale by one owner of his or her interest in the property is also regarded as being the transfer of a business and there is no VAT liability.
Is the transfer of a pub licence in isolation (i.e. with no other accompanying assets) considered as the transfer of a business, and free from VAT?
Technically, such a transfer should not qualify as the licence, in itself, does not constitute an undertaking or part of an undertaking capable of being operated on an independent basis; the licence is no more or less than an entitlement or right to carry on a licensed pub trade. Nonetheless, Revenue is prepared to treat the sale or transfer of a pub licence from one taxable person to another taxable person as the transfer of a business, and there is no VAT liability.