According to Accounting Web here is information about avoiding a VAT crisis when buying a business.
The transaction of buying whole or part of a business may be treated as a “transfer of going concern” (TOGC) for VAT purposes, in which case the seller doesn’t charge VAT on the sale of the business.
Exempt Business
If TOGC conditions are met by a business sale then the proceeds are outside the scope of VAT, i.e. the seller is not making either a supply of goods or services.
The TOGC applies when the seller is VAT registered, and also the buyer is VAT registered or liable to be registered at the time of the transfer.
The problem
A VAT registered business owner with a portfolio of mixed assets (some registered for VAT and others VAT exempt), may decide to sell a VAT exempt asset, meaning the buyer will only make exempt sales when operating the VAT Exempt asset – the issue is the buyer will be unable to register for VAT.
In this situation the seller does not treat the sale of the VAT exempt asset as TOGC – this is because the sale doesn’t meet the TOGC conditions, which state the buyer should be VAT registered or liable to be registered at the time of the transfer.
However, ‘goodwill’ transferred is standard rated if the TOGC rules do not apply because the buyer is paying for benefits such as customer contacts, trading name, business location, staff etc., which have a value.
Common areas of difficulty: transfer of a wholly exempt business
A VAT registered company which has both exempt and taxable businesses, may transfer the wholly exempt part of the business as a going concern.
If the buyer does not carry on VAT taxable business in his/her portfolio then, he/she will not be a taxable person.
However, if the taxable person conditions for the TOGC provisions to apply are not met, the sale of the VAT exempt asset will be a supply (for VAT purposes).
Where the assets are goods with no input tax deductible (because they were directly attributed to a wholly exempt activity) their supply is exempt. However, if the assets (VAT exempt) provide services, and the buyer of the asset does not meet the TOGC conditions, then the asset transfer will be Vatable.
In this instance, the charge for goodwill will be a standard rated supply by the seller to the purchaser who does not meet the TOGC conditions .
Planning point
If a goodwill payment is high, the buyer of the VAT Exempt asset perhaps may choose to provide Vatable or zero-rated supplies within the VAT Exempt business he/she is acquiring.
The buyer could then register for VAT on a voluntary basis and become a taxable person to meet the TOGC condition. This is a win situation whereby, the seller will not charge VAT as long as the buyer has his/her VAT number before the date he buys the business.