Company will record its VAT recoverable and payable in respect of the transactions that it makes with entities outside the VAT group. There will then be a VAT liability or asset at Completion, representing the net VAT effect. As long as the VAT group remained in being, a single return would be made by the representative member and the balances on the VAT account would be transferred by means of an intercompany transfer to the representative member. 10.4 If the Company is in a VAT group and if there is a liability in the balance sheet of the Company at Completion, then there is a risk to the Sellers in respect of this liability: if the Buyer does not procure the payment of the VAT that arises for the period up to the point of Completion, then the liability falls on the Seller group. 10.5 An indemnity from the Buyer is therefore appropriate in the circumstances of a corporate Seller, if the Company has been part of a VAT group with other companies in the corporate Seller’s group. 10.6 In addition to this, if the Company is made a member of the Buyer’s VAT group after Completion, it is then jointly and severally liable for any VAT payable to HMRC in respect of that group. This may cover VAT on transactions arising up to Completion and this may therefore result in the Buyer being able to claim for such VAT costs under the tax covenant.
11 Other Valued Added Tax Contingent Liabilities
11.1 There are several other circumstances in which VAT can be assessed on a company other than the company with the primary liability: these mainly relate to activities such as “missing trader” or carousel fraud. Due to the unusual nature of these liabilities, it would not normally be necessary to refer to them specifically in any indemnity from the Buyer.
12 Stamp Duty: Section 111 and Schedule 34, Finance Act 2002 - Withdrawal of Group Relief
12.1 Property can be transferred within 75% groups without there being an immediate charge to Stamp Duty Land Tax, due to the operation of group relief (Section 42 (2B), Finance Act, 1930). Under Section 111, Finance 2002, group relief is withdrawn if the company receiving the property leaves the group within three years of the transfer, if it still holds the property in question, and if it effectively separates from the transferor company. 12.2 The primary liability falls on the transferee company which is leaving the group. (This is therefore similar, in some ways, to the charge that arises on the transferee company under the provisions of Section 179, TCGA.)
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