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bigduckontax, Accountant
Category: Tax
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About 5 years ago my husband and I bought a business property

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About 5 years ago my husband and I bought a business property for £200000. He was an ex accountant and handled all our financial affairs but at the last minute discovered there was £40000 VAT to pay so he made an arrangement so we did not have to pay VAT up front but became registered to pay VAT from there on. He also arranged to buy the property as a partnership, separate from our business at the time. In December 2012, my husband walked out, it turned out he had been seeing someone for a year, had accrued huge debts and had been planning his exit from then. After a very long, expensive and drawn out divorce the settlement was that I 'bought him out' of his share of the building and the partnership would be dissolved, he also agreed to have no further interest in the joint business. The current agreed value of the property was £220000 but there was an outstanding loan on it of £6500. I had to pay my ex-husband £104500 and took on the outstanding loan. I also just about settled all outstanding debts. The partnership had not been a working company as such only renting the property to our business (which I ran and this generated income), a small school for kids with special needs. The school was registered in my name. I continue to teach at the property although I closed the school and the business that had been in both our names (did not trust ex and lost funding). It was agreed with the VAT dept that I would continue to pay VAT and stay registered but for £20000 as I was still teaching albeit in a different way. I believed that as the VAT was incurred when we purchased the property in the partnership it was a joint 'debt'. It appears the VAT office thought the same and sent my ex a demand for the other £20000 (or just under) but as he cannot teach he is being asked to settle in full. He is now threatening to sue me if I do not take responsibility and tell tax office I will pay it. As part of the settlement he made me sign a statement to say that 'Upon the respondent wife undertaking to indemnify the petitioner husband against any liabilities of the partnership that have accrued since 29th December 2012 save for the personal income tax liabilities and accountancy liabilities'. My ex is saying this means I 'transferred all VAT liabilities' over to me and I am in breach of the order by not agreeing to pay this for him. I don't have the money... he told me he was going to 'bring me crashing down' and I am afraid that this will indeed destroy what little there is left and I will have to sell up to get the money as I have hardly any turnover at all now. Is there anything I can do?
Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question. Go and consult a local, trusted solicitor immediately and put the matter in his hands. This is far too complex and dangerous for you to handle yourself.
Customer: replied 2 years ago.
Hi, I have consulted my solicitor that 'handled' my case... he is unsure and says he is off on holiday but I know my husband's solicitor will harass me ...
Then find another or his partner, this is a serious matter.
Customer: replied 2 years ago.
It cost me £12000 to defend myself from my ex before, I do not want to enter into another costly battle if I have no hope of getting anywhere other than a huge bill and still having to pay the VAT
I am becoming totally confused. You say you had to pay VAT on the original purchase, fair enough. That would be to the vendor not HMRC. If you registered for VAT it would be an input and re-claimed on your first quarterly return anyway so you would not be out of pocket.
Customer: replied 2 years ago.
Sadly I am very confused, my husband was an ex accountant and handled all our financial affairs at the time... big mistake!.... he understands fully, I don't and he knows this, all I do know is that we have a £40000 VAT bill... we only had rental income into the partnership which was VAT registered from the school (not registered for VAT) to register any VAT (about £300 per month +VAT). I think my main concern at the moment is whether the VAT is a debt from pre 2012 or not... or, when the partnership dissolved and I took over the building by buying him out, was the VAT debt left with the partnership to resolve or did it transfer to me as the new owner of the building? I am now a sole trader by the way
The VAT debt would be with the business relevant to the partnership. Unless you novated the VAT registration, ie took it over formally it would not transfer to your business as a sole trader.
Customer: replied 2 years ago.
I think that is what I need to hear! thank you! I have an arrangement to pay VAT and have been paying it. My income however has dramatically reduced... my funding was worth around 120000 pa but my ex destroyed my reputation too hence I lost the contract... I am slowly rebuilding but it is a fraction of that now, around 20000! hence I cannot afford to take on his share of the VAT. When the partnership dissolved, I assume the partners become equally liable for the outstanding debt?
Customer: replied 2 years ago.
It is the 'novated' bit my ex and his solicitor are trying to bully me into signing.
Yes, but in accordance with their profit split as set out in the partnership agreement which, from the tenor of your responses, I suspect will not exist! Don't sign, tell them to take a running jump. You must engage a competent solicitor without delay. Please be so kind as to rate me before you leave the just Answer site.
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Customer: replied 2 years ago.
Thank you so much, I hoped this would be the case but was frightened to stand up to them really, has cost me so dearly so far and yes there was only a huge overdraft from the partnership... which I settled!
thank you
Delighted to have been of assistance. You must always stand up to bullies. I recall once at a meeting a Tax Inspector demanding immediate payment in cash of tax which was not even due. He did not get it, needless to say, and his antics drawn to the attention of his superiors. The result was a hurried withdrawal of the demand by the head of the relevant tax office!
Thank you for your support.