VAT Number: Keep It or Let It Go?
What Happens to Your VAT Number When Your Business Changes?
If you’re buying a business, merging, or changing its legal structure — for example, from a sole trader to a limited company — one of the key decisions you’ll face is:
Should you keep the existing VAT registration number?
This can seem like a small administrative detail, but it carries serious tax implications — both positive and negative.
In this article, we explain:
- When you can transfer a VAT number
- The pros and cons of doing so
- What to watch out for (including hidden liabilities)
- How to complete the transfer with HMRC
When Can You Transfer a VAT Number?
HMRC allows a VAT registration number to be transferred when:
- A business is sold as a going concern (TOGC)
- The business changes legal entity (e.g. sole trader ➝ limited company)
- The new entity wants to continue trading under the same registration
You’ll need to complete:
- Form VAT68 (to transfer the VAT number)
- Form VAT1 (to register the new business for VAT)
These must be submitted together, or within 21 days of each other. Once HMRC approves the transfer, it cannot be reversed.
HMRC treats VAT68 as a cancellation for the seller and a registration for the buyer — no separate VAT7 is needed.
Advantages of Keeping the VAT Number
There are administrative and operational benefits to keeping the existing VAT number, including:
1. No disruption for customers or suppliers
You won’t need to update trading partners or reverify VAT details — this avoids confusion and keeps business flowing.
2. Keep using the same invoices and stationery
You won’t have to redesign invoice templates or letterheads with a new number.
3. Same VAT return periods
Avoids breaking or overlapping reporting quarters — easier for accounting and bookkeeping.
4. No need to update systems and registrations
If your VAT number is linked to online sales platforms (like Amazon, eBay, Shopify), financial software, or contracts, changing it can create headaches.
For brand continuity and admin simplicity, retaining the number can be useful.
But Beware: Hidden Risks of Keeping the VAT Number
While there are advantages, retaining a VAT number also comes with real risks, especially when the new business owner is not closely connected to the old one.
1. You inherit all VAT liabilities
By taking over the VAT number, you also accept responsibility for:
- VAT errors made by the previous owner (up to 4 years back)
- Any assessments, penalties, or unpaid VAT
- Disallowed input tax or overpaid output tax
2. Limited rights to reclaim overpaid VAT
Even if you’ve taken over the VAT number, you can’t reclaim VAT overpaid by the previous business — only they can do that.
Case law confirms this:
- Shendish Manor Ltd: The buyer couldn’t reclaim output VAT overpaid by the seller, even though the VAT number was transferred.
- Pets Place (UK) Ltd: The buyer wasn’t held liable for disallowed input tax claimed by the seller — a rare win, but not guaranteed.
Should You Keep the VAT Number?
Best suited when:
- The change is a legal restructure (e.g. sole trader to Ltd)
- The businesses are closely related or have common ownership
- You’ve carried out full due diligence
Avoid if:
- You’re buying a third-party business without inside knowledge
- There are any doubts about the VAT records or history
- You want a clean slate from a compliance standpoint
What About VAT Records?
Normally:
- The seller keeps the VAT records
- But if the VAT number is transferred, the records must also be transferred to the new entity
If the seller needs to retain the records, they must request HMRC permission to do so.
Remember: Record-keeping is essential for any future VAT disputes or compliance checks.
Special VAT Schemes End on Transfer
If the old business was using:
- The Flat Rate Scheme
- Annual Accounting
- A Retail Scheme
These all end on the date of transfer. The new business must reapply if it wants to continue using them.
Similarly, if the old business had opted to tax a property, the new business must make a new option to tax.
Paying VAT? Don’t Forget the Direct Debit
Before the transfer:
- The seller must cancel their VAT direct debit
- The buyer must set up a new direct debit under their bank details
Missing this step could lead to missed payments and default surcharges.
Summary: Pros & Cons of Transferring a VAT Number
| Advantages | Disadvantages |
|---|---|
| Retain trading history with customers | Inherit seller’s VAT liabilities (up to 4 years back) |
| Avoid reprinting stationery/invoices | Can’t reclaim seller’s overpaid VAT |
| No disruption to VAT return schedule | Must take on responsibility for VAT records |
| No revalidation of VAT number with suppliers | Loss of VAT schemes (flat rate, retail, etc.) on transfer |
Practical Tip: Due Diligence First, Decision Second
Before agreeing to keep a VAT number:
- Review the seller’s VAT history
- Ask for copies of recent VAT returns, payments, and HMRC correspondence
- Ensure all disputes or errors are resolved prior to the transfer
- Consider using a warranty or indemnity in a business sale agreement to protect against historical VAT liabilities
Final Thoughts: Should You Keep the VAT Number?
It’s tempting to keep the same VAT number for simplicity — especially in restructures or friendly transfers.
But don’t let convenience override caution.
If you’re unsure about the seller’s VAT compliance or simply want a clean break, starting with a new VAT number might be the safest move.
Need Help Deciding? Merranti Can Guide You
At Merranti Accounting, we help business owners and buyers:
- Decide whether to keep or change a VAT number
- Handle HMRC forms (VAT68 & VAT1) correctly
- Conduct VAT due diligence
- Reapply for VAT schemes and options to tax
- Avoid surprise VAT bills post-transfer
