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Launderette Purchase

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My brother in law, has made up his mind, be is buying a launderette, as a going concern, the cost is around £250k sterling, he is paying cash, he managed to knock off £70k off the asking price, so not bad. It is a freehold property with a three bedroom flat above where he will be living with his new women.

What i am asking for is what buying cost are involved.

It is trading under the VAT threashold. The VAT threashold is i think £68k, but it is only trading on accounts given/shown at £52k per annum. He is not VAT registered currently himself, the business is not VAT registered currently. He is buying it as a going concern, the freehold property, and all fixtures and fittings etc.

Will he have to pay any VAT on top of the purchase price, will he have to apy and land stamp duty tax? Or any other costs?

Cheers.

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My brother in law, has made up his mind, be is buying a launderette, as a going concern, the cost is around £250k sterling, he is paying cash, he managed to knock off £70k off the asking price, so not bad. It is a freehold property with a three bedroom flat above where he will be living with his new women.

What i am asking for is what buying cost are involved.

It is trading under the VAT threashold. The VAT threashold is i think £68k, but it is only trading on accounts given/shown at £52k per annum. He is not VAT registered currently himself, the business is not VAT registered currently. He is buying it as a going concern, the freehold property, and all fixtures and fittings etc.

Will he have to pay any VAT on top of the purchase price, will he have to apy and land stamp duty tax? Or any other costs?

Cheers.

Sounds like a plan, I reckon he could clean up!

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Cum on peeps, anyone?

Usually VAT is an art rather than a science, you end up agreeing treatment with the VATman on the grey areas. This however looks like a straightforward transfer of a going concern and is not therefore a supply of goods or services and so not within the scope of VAT.

The HMRC website can be pretty good these days, here's the relevant bit:

1.2 What is a Transfer of a business as a going concern (TOGC) for VAT purposes?

Normally the sale of the assets of a VAT registered or VAT registerable business will be subject to VAT at the appropriate rate. A transfer of a business as a going concern for VAT purposes (TOGC) however is the sale of a business including assets which must be treated as a matter of law, as 'neither a supply of goods nor a supply of services' by virtue of meeting certain conditions. Where the sale meets the conditions then the supply is outside the scope of VAT and therefore VAT is not chargeable.

It is important to be aware that the TOGC rules are mandatory and not optional. So it is important to establish from the outset whether the sale is or is not a TOGC.

The main UK law concerning TOGCs is The VAT (Special Provisions) Order 1995 (SI 1995/1268 Art 5). The UK law is derived from Articles 19 and 29 of the Principal VAT Directive (Directive 2006/112/EC). But there are several other legal provisions relating to TOGC. These are Sections 44, 49, 94(6) and Para 8 Schedule 4 VAT Act 1994. Extracts of UK VAT law are shown at section 10.

We see the main conditions as being:

* the assets must be sold as part of the transfer of a 'business' as a 'going concern';

* the assets are to be used by the purchaser with the intention of carrying on the same kind of 'business' as the seller (but not necessarily identical);

* where the seller is a taxable person, the purchaser must be a taxable person already or become one as the result of the transfer;

* in respect of land which would be standard rated if it were supplied, the purchaser must notify HMRC that he has opted to tax the land by the relevant date, and must notify the seller that their option has not been disapplied by the same date;

* where only part of the 'business' is sold it must be capable of operating separately; and

* there must not be a series of immediately consecutive transfers of 'business'.

http://customs.hmrc.gov.uk/channelsPortalW...=HMCE_CL_000093

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Cheers Frank.

What about total costs of any other costs apart from cost of business?

No VAT to pay, but he has never bought a business, he is a novice, god help him?

He thinks, get up, open up, smile, end of day, empty cash from machines, one for me one for the books? Then off to the pub, then off to bed, easy hey?

Is he just looking at stamp duty of 2% on 250k, and solicitors costs, so all in all around £6k?

Panda.

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Cheers Frank.

What about total costs of any other costs apart from cost of business?

No VAT to pay, but he has never bought a business, he is a novice, god help him?

He thinks, get up, open up, smile, end of day, empty cash from machines, one for me one for the books? Then off to the pub, then off to bed, easy hey?

Is he just looking at stamp duty of 2% on 250k, and solicitors costs, so all in all around £6k?

Panda.

Not my area of expertise Panda, I am (sadly) fairly interested in VAT. It's for the job, honest.....

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Cheers Frank.

What about total costs of any other costs apart from cost of business?

No VAT to pay, but he has never bought a business, he is a novice, god help him?

He thinks, get up, open up, smile, end of day, empty cash from machines, one for me one for the books? Then off to the pub, then off to bed, easy hey?

Is he just looking at stamp duty of 2% on 250k, and solicitors costs, so all in all around £6k?

Panda.

Stamp duty is payable on the price of the freehold property. So it's important to split the purchase price into its constituent parts. Freehold property, business assets (fixtures and fittings, machinery and equipment, goodwill - maybe some other elements). Legal fees are negotiable with the solicitor you engage.

I would suggest he obtains professional advice from an accountant on how best to structure the purchase price.

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I would defo consult a good accountant on this one before I start. We have a couple of businesses and my accountant has been of great help to us in trying to structure things in the best possible way. I don't for one minute think he is the best but he is more informed than I am and I bounce absoluetly everything off of him so that he stays in the loop and knows what is going on.

HTH

Cheers

Mike

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I would defo consult a good accountant on this one before I start. We have a couple of businesses and my accountant has been of great help to us in trying to structure things in the best possible way. I don't for one minute think he is the best but he is more informed than I am and I bounce absoluetly everything off of him so that he stays in the loop and knows what is going on.

HTH

Cheers

Mike

Stamp duty is payable on the price of the freehold property. So it's important to split the purchase price into its constituent parts. Freehold property, business assets (fixtures and fittings, machinery and equipment, goodwill - maybe some other elements). Legal fees are negotiable with the solicitor you engage.

I would suggest he obtains professional advice from an accountant on how best to structure the purchase price.

Cheers Guys,

Been talking about it this afternoon, he is trying to convince me he is onto a winner, me not sure? He got more or less 20% off the quoted inflated asking price? A shop, with a one bedder above Freehold, the shop has ten washers and six dryers i think, scrap value a couple of grand?

£250k big ones, i think its £100k for the flat, and £150k for the shop including its contents?

This is the best bit, the flat is currently rented for £450 per month, so thats what 5.4% yield before costs, Ha! :(

The shops leashold is i think £50k to buy over 10 years, with £11k per annum rent? So whats that £11k+£5k=£16k/52=£308 per week rent? :( Just over 10% yield on the shop, not bad? ;)

So you reckon, no VAT, land stamp duty at 2% of freehold value, so £250k, minus shops contents = £245k = £4900 plus Solicitors fees? So about £6k in costs up front?

Got me thinking though, he is not registered for VAT, the shop is trading below the £68k threshold, or well the books say it is? Launderettes pound coins, one for me, one for the tax man etc?

He will not need to register for VAT operating will he, just pay 20% tax on profits minus costs? Could be a nice little earner you reckon?

Cheers all Panda? :unsure:

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Cheers Guys,

Been talking about it this afternoon, he is trying to convince me he is onto a winner, me not sure? He got more or less 20% off the quoted inflated asking price? A shop, with a one bedder above Freehold, the shop has ten washers and six dryers i think, scrap value a couple of grand?

£250k big ones, i think its £100k for the flat, and £150k for the shop including its contents?

This is the best bit, the flat is currently rented for £450 per month, so thats what 5.4% yield before costs, Ha! :(

The shops leashold is i think £50k to buy over 10 years, with £11k per annum rent? So whats that £11k+£5k=£16k/52=£308 per week rent? :( Just over 10% yield on the shop, not bad? ;)

So you reckon, no VAT, land stamp duty at 2% of freehold value, so £250k, minus shops contents = £245k = £4900 plus Solicitors fees? So about £6k in costs up front?

Got me thinking though, he is not registered for VAT, the shop is trading below the £68k threshold, or well the books say it is? Launderettes pound coins, one for me, one for the tax man etc?

He will not need to register for VAT operating will he, just pay 20% tax on profits minus costs? Could be a nice little earner you reckon?

Cheers all Panda? :unsure:

Anyone any info, feedback?

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£250k big ones, i think its £100k for the flat, and £150k for the shop including its contents?

So, 150 grand for ground floor shop premises (which are probably zoned retail so can't readily be converted into additional living space if that is a backup plan) and some knackered washer dryers...

Consider - insurance (contents, public liability), electricity bills, the fact that pocketing every other quid is fraud, local 'protection' money (very common where cash businesses are involved) and whether anyone is actually using this laundrette.

Yeah, cushty deal!

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So, 150 grand for ground floor shop premises (which are probably zoned retail so can't readily be converted into additional living space if that is a backup plan) and some knackered washer dryers...

Consider - insurance (contents, public liability), electricity bills, the fact that pocketing every other quid is fraud, local 'protection' money (very common where cash businesses are involved) and whether anyone is actually using this laundrette.

Yeah, cushty deal!

I agree, you put it like that, not very attractive is it? Especially the "Protection Money", i reckon its worth no more than 175k?

He was looking at this one @£275k;

http://www.1stforbiz.com/listing.jsp?reference=L6987J

Maybe £100k overdone, i reckon this would have gone for around £120k in 97?

Any other thoughts?

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