Vat query- when buying a pub.

Discussion in 'Finance, Property, Law' started by fairycakes, Nov 4, 2009.

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  1. My brother buying a pub that has been closed for two years, not one of his better ideas.
    Can anyone confirm that VAT will be added to the purchase and can you claim back the VAT if you do not reach the VAT limit within a year trading.
  2. Gremlin

    Gremlin LE Good Egg (charities)

    Only on the Fees IIRC, but the best people to check with would be the BII:

    If he is intending to be the licensee it would be a good plan to join it anyway.
  3. "fairycakes", you are correct !! “ . . .not one of his better ideas”.

    Whether VAT will be charged/added to the price of the pub, depends on whether the vendor’s turnover exceeds the VAT threshold of £70k ish a year.

    If the place has been closed for two years, he could/should be paying less than this. The value/price of a pub is calculated on its sales/turnover. If it is closed (for two years), it only has a nominal value.

    However, if he is buying from a “Pub Co” (and not from an individual), the “Pub Co’s” turnover will certainly mean that they are VAT registered and he will be charged VAT.

    Yes he can arrange to claim the VAT paid, against the VAT he will have to pay in successive quarters, once he is trading. However, he has to sign an undertaking “not to waiver his right to . . . . . ” Oh, its technical and I don’t understand it all !!

    Be aware that having registered for VAT himself; and, having signed the “undertaking not to waiver his right”, he will have to charge and pay VAT when he comes to sell/off-load the pub himself. (Which will be sooner than he thinks !!)

    If he is buying freehold, he will have a “get out of jail card” / exit strategy.

    If he is only buying the lease, he is certifiable, as any medical practitioner/financial expert will testify.

    Hope this helps.
  4. Gremlin

    Gremlin LE Good Egg (charities)

    I thought that VAT on applied to a Leasehold or Tenancy (given the threshold caveat?).

    I rather stupidly assumed that this was Freehold. If it is anything else,and the business has been dead for two years then he is barking. Unless it is design as a tax loss of course!
  5. Or unless he has alternative ideas, other than using it for the "retail of alcohol for consumption on the premises".
  6. Thanks for the feedback.
    Yes the freehold pub been closed for two years (not sure if the seller a idividual or a chain)
    The purchase price £200,000 + vat (cash purchase)
    Will then borrow £100,000 to redevelopment to include
    50% bar and small eating area.
    50% introducing a new fish and chip takeaway his trade.
  7. He is going to invest a total of £300k !!

    Even if he has £200k of his own capital to invest - and is only borrowing £100k - he should expect to pay himself interest on his £200k investment similar that he would earn if his money were left in a building society.

    So either way, he should calculate a minimum of approx 5% interest to his finance provider (for the redevelopment loan), and to himself in return for the “opportunity cost” of investing his own money ( . . . which would be safer left in the building society!).

    So, his finance costs will be approx £300k x 5% = £15,000-00 a year.

    Assuming sales from the wet (drinks) side of the business, will generate an industry average of 50% gross profit (i.e. 100% mark-up on top of what his suppliers charge him), he has to generate £30,000-00 a year sales/turnover, just to service his borrowing/finance costs.

    That is £600 of sales a week he has to generate just to service his borrowing/finance costs, before he even considers heating and lighting; business rates and licences; and (even) modest “cost of living” expenses/“drawings” for himself.

    I suggest he ask to be put on the mailing list of both the industry weekly magazines . . . “The Publican” and “The Morning Advertiser”. He will quickly begin to appreciate why folk are leaving (not entering) the industry.
  8. The £200k from a sale of his chip shop including family home no other assets.
    He is convinced he is onto a winner. Buy a rundown closed freehold pub in a small village (no more than 100 houses + another pub) turn 50% into fish & chip takeaway and then employ staff to look after the running of the pub, more costs!
    Thanks for the information just passed on, getting close to me butting out. Last comment "what do I know I'm losing money, while he is on the up" :D
  9. Gremlin

    Gremlin LE Good Egg (charities)

    Quite frankly that's a suicide mission, and I am talking as an ex Asst Area Manager for one of the top 6 Breweries.100-200 households will hardly support one pub, let alone two even if you make it a destination venue (and you would have to have very good food to do that).

    Likewise I would be wary of thinking that 'The Local Chippie' will support the pub enough to keep it's head above water. There will be a very very good reason why the pub closed in the first place, and more to the point why it has stayed closed.

    One further indicator is something that RCT(V) alluded to in his last but one (but which I was loathed to talk about earlier). If there was a healthy population movement in the area, indicating a good local economy (which is vital for both the wet and dry trade, Wet = Drinks, Dry = Food), then after that long standing empty a developer should have snapped the freehold up to convert it into housing.

    Buying a Pub if you do not fully understand the trade was a sure fire way of losing money 10 years ago, in this market even the best are going under.

    He might be better off buying a racehorse for £50k and using the other £150k for training fees. At least he might get some pleasure out of that!

    Sorry to sound so negative, but best of luck to him anyway.
  10. Thanks for all the professional(experience) advice. My brother on Friday accepted the suicide mission and the offer been accepted.
    We popped over and viewed the pub on Saturday, talk about risks he would be careful/lucky to get away with keeping within the £100,000 budget.
    I better go and contact Sarah Beeny as a potential must see television show :twisted: :D
  11. "fairycakes",

    Mrs RCT(V) and I started trading on Christmas Eve 2002. Quite prophetic (and coincidental), that we sold the last of the beer, ceased trading and closed the place, on Easter Monday 13 April this year.

    If suicidal brother is (or any other readers are) interested, I have for disposal at very reasonable prices:

    1 x virtually new five-column cigarette machine (you really do not want the problems associated with keeping them loose behind the bar).

    2 x virtually new double-door cooler cabinets

    2 x serviceable if rudimentary cash tills

    1 x serviceable “air-con” system for the cellar. The outside heat-exchanger “heat-dump” is only a couple of years old. The inside fan/cabinet somewhat older.

    12 x old copper topped tables, and 30+ maroon upholstered stools.

    Assorted very serviceable “up lighters” and recessed “down lighters”

    (We can go to PM to discuss prices!)


    An introduction to the lovely Sarah Beeny, will be gratefully accepted!! 8)