When a business changes entity, e.g. from a sole trader or partnership into a limited company, to what extent does the VAT status of the original entity affect the new one?

The important point is whether the original entity was a taxable entity, this means that they were either already VAT registered or liable to register in that their turnover had exceeded the VAT registration threshold but they had not yet registered.

If this is the case than the new entity must continue with the same VAT status and registered from day one.

However, if the original entity was not a taxable entity, then the VAT threshold resets and the new entity is only liable to VAT registered once it’s turnover reaches the VAT threshold, ignoring the turnover from the previous entity.

As with all of our tax tips and web pages this information is necessarily summarised and of a general nature.  If you would like detailed specific advice please contact us.