What are the rules about notifying HMRC of the retirement of a business partner?
Q: My client is a VAT registered 2-person partnership. One of the partners is retiring from the business. Does my client need to tell HMRC about this?
A: Yes. For VAT purposes, when a partner leaves a 2-person partnership, leaving only 1 partner, the remaining sole trader is a separate "entity" from the partnership. This means for VAT purposes, there is a deemed transfer of the business from the partnership to the sole trader. It is likely that such a deemed transfer is an outside the scope of VAT TOGC (transfer of a business as a going concern) assuming all the requirements in Notice 700/9 para 1.2 & 2 are met. In particular, the sole trader must be VAT registered in its own right at the date of transfer, or be compulsorily registerable (for example as a result of inheriting the partnership’s taxable turnover) or make a VAT68 election to take over the partnership's VAT number. If VAT 68 action is not taken, the partnership would need to deregister using a VAT7. Extra care should also be taken if the partnership assets include any interests in land or property that could, if sold in their own right by the partnership, be subject to VAT - additional advice should be considered if this is the case.