VAT & Inherited Liability

The First-tier Tribunal's recent decision in KC v HMRC, confirms that a business can pass as a transfer of a going concern (TOGC) even where the seller was never registered for VAT, leaving the purchaser with a registration liability.
 
The appellant had worked in the kitchen of a takeaway operated by Wok to Box Ltd. The company never registered, although its turnover exceeded the registration threshold from September 2017. When it was dissolved on 12 November 2019, the appellant continued the takeaway as a sole trader from the same premises, under the same name and without a break in trade.
 
In June 2024, HMRC registered him with effect from 13 November 2019.
 
The appellant accepted there had been a TOGC. The central question was whether a company that had never registered could be the transferor, and the tribunal held that it could. A taxable person is someone who is registered or is required to be registered. As the company's supplies had exceeded the threshold, it was a taxable person despite its failure to register, and the appellant's lack of knowledge of its VAT position was irrelevant.
 
On a TOGC, the purchaser is treated as having carried on the business before the transfer as well as after it when testing liability to register. The company's historic supplies therefore counted towards the appellant's turnover, taking him over the threshold at transfer. The appeal was dismissed, with the effective date of registration corrected to 12 November 2019, the date of the transfer itself.
 
The tribunal also found no evidence that, at the date of transfer, turnover was expected to fall far enough to engage the exception for businesses whose future turnover will stay below the limit.
 
For anyone acquiring an existing business, including informal takeovers by family members or employees, the question is not simply whether the seller holds a VAT number but whether it should have done. If so, the purchaser may be required to register from the day of the transfer, and the consequences may only surface years later. Where a buyer expects turnover to fall after acquisition, the evidence for that needs to exist at the time of transfer.