Results 1 to 9 of 9

Thread: Purchasing a business as a running concern

  1. #1
    Gold Member Singhms's Avatar
    Join Date
    Oct 2008
    Location
    Pretoria (National)
    Posts
    976
    Thanks
    161
    Thanked 52 Times in 48 Posts

    Purchasing a business as a running concern

    Hi,

    Is it correct that if you purchase a business as an ongoing\running concern that you do not pay the VAT?

    Additionally, what happens in a transaction of this nature if there are assets also? E.g. fridges, desks, computers, etc...

  2. #2
    Platinum Member Marq's Avatar
    Join Date
    May 2006
    Posts
    1,296
    Thanks
    73
    Thanked 283 Times in 216 Posts
    I am not sure as to what you are going to pay VAT on or for? What you have in mind here.

    Purchasing a business can take a few forms. Firstly though it would depend in what legal entity the business is held. Is it a company, cc, sole trader, agency etc. From there one would determine what is being purchased. One could fr example purchase the business as a whole or take parts out of the business.

    From these decisions, one can then determine the tax implications from all sides.
    The cost of living hasn't affected its popularity.
    Sponsored By: http://www.honeycombhouse.com

  3. #3
    Site Caretaker Dave A's Avatar
    Join Date
    May 2006
    Location
    Durban, South Africa
    Posts
    20,978
    Thanks
    3,055
    Thanked 2,462 Times in 2,067 Posts
    Blog Entries
    12
    Quote Originally Posted by JWalker View Post
    Is it correct that if you purchase a business as an ongoing\running concern that you do not pay the VAT?
    I recall something about this being zero rated from discussion in a previous thread. But Morticia really seems to be the tax expert on this sort of thing. Hopefully she'll pop in with the definitive answer.

    My understanding on the assets - Buy the concern for your purchase price to optimise on CGT if you sell again one day. By all means have a list of assets you're receiving in the agreement, but don't have values assigned to them.

    Then go through a revaluation process on the assets that you have received as part of the business. It's handy to know the book value of those assets so that you can pick the higher value between book value and fair market value. It is tax efficient to apportion as much as you can of the purchase price to depreciable assets - the balance of the purchase price will be assigned to goodwill which is not depreciable for tax purposes.
    The trouble with opportunity is it normally comes dressed up as work.

  4. #4
    Silver Member
    Join Date
    Jun 2008
    Location
    JHB
    Posts
    271
    Thanks
    73
    Thanked 76 Times in 56 Posts
    Tx for the vote of confidence Dave! Hope this is helpful?

    http://www.moneywebtax.co.za/moneywe...7569&sn=Detail

  5. Thanks given for this post:

    Dave A (16-Jul-09)

  6. #5
    Site Caretaker Dave A's Avatar
    Join Date
    May 2006
    Location
    Durban, South Africa
    Posts
    20,978
    Thanks
    3,055
    Thanked 2,462 Times in 2,067 Posts
    Blog Entries
    12
    Your expertise has been pretty clear in your posts so far, Morticia, and you prove my faith in you yet again. Thanks indeed.
    The trouble with opportunity is it normally comes dressed up as work.

  7. #6
    Platinum Member Marq's Avatar
    Join Date
    May 2006
    Posts
    1,296
    Thanks
    73
    Thanked 283 Times in 216 Posts
    OK - I'm still a few steps behind here.

    Are we talking about selling the assets out of a company and the vat related to the valuation of those assets or are we talking about selling the company's shares or both? Does it make any difference? What valuation can be used that sars accepts?

    Now should the company be liable for the vat. Would you expect the seller to leave enough cash resources behind to cover sars payment requirements? What happens if the 'business' does not have enough cash to cover the transaction? The buyer injects new cash and reduces the sale value.....How would the deal be structured?
    The cost of living hasn't affected its popularity.
    Sponsored By: http://www.honeycombhouse.com

  8. #7
    Gold Member Singhms's Avatar
    Join Date
    Oct 2008
    Location
    Pretoria (National)
    Posts
    976
    Thanks
    161
    Thanked 52 Times in 48 Posts
    Thanks Dave and Morticia, your help is appreciated.

  9. #8
    New Member
    Join Date
    Jun 2009
    Location
    Nelspruit
    Posts
    4
    Thanks
    0
    Thanked 1 Time in 1 Post
    When selling a company the non-payment of VAT are as forth:

    The company or CC must be VAT registered.
    In the purchase agreement, there must be a paragraph stating that the business is an operating concern and that the purchase of the business by between the buyer and seller will be a ZERO VAT transaction.

    If one is purchasing the assets of the business into a new company, which is a prudent move in a buying of a business.
    One can do the same process as long as the assets are the companies assets used in operation. Must be staed as so on the purchase agreement and that the business is a going concern and the transaction will be ZERO RATED.

    If you do not put this in the purchase agreement, you will be in for a SARS induced shock.

    Further, it may be prudent to also to advertise the sale of the business in the newspaper in both official languages as well as the Govt Gazette, 30 days before salecomes into effect. This is done in accordance with Section 34 of the Insolvency Act and protects you against those unseen creditors.

  10. #9
    Silver Member
    Join Date
    Jun 2008
    Location
    JHB
    Posts
    271
    Thanks
    73
    Thanked 76 Times in 56 Posts
    Remember that selling shares in a company/cc is not the same transaction as selling a business. Shares = capital assets = CGT, business/enterprise = trading vehicle = VAT.

    And yes, the agreement MUST state the business is sold a "going concern", i.e. the buyer MUST be able to continue trading immediately after the sale.

Similar Threads

  1. No more business plans please!
    By Vincent in forum Entrepreneurship and Business Management Forum
    Replies: 26
    Last Post: 12-Nov-10, 09:57 AM
  2. [Article] Working from Home - The Online Business Reality
    By David Venter in forum General Business Forum
    Replies: 5
    Last Post: 06-Jul-10, 09:11 AM
  3. Fundamental business principles - Get and keep customers
    By Dave A in forum Entrepreneurship and Business Management Forum
    Replies: 11
    Last Post: 12-Oct-09, 08:20 PM
  4. [Article] Communication: The Key To Business Turnaround
    By Vincent in forum Entrepreneurship and Business Management Forum
    Replies: 0
    Last Post: 26-Apr-08, 04:20 PM

Did you like this article? Share it with your favourite social network.

Did you like this article? Share it with your favourite social network.

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •