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What happens to your partnership's VAT registration if it dissolves?

by , 24 February 2016
You all know that if you're in a partnership, it MUST be registered for VAT, provided:

· It has a turnover of over R1 million in any 12-month period; and
· There is an agreement or contract confirming there will be an income of over R1million in the next 12 months.

You could also voluntarily register for VAT if it earns over R50 000 in any 12-month period.

But now that it's registered for VAT, what happens to the VAT registration if the partnership dissolves? In other words, what happens if the partnership changes or ends?

This can create many question marks, but we'll help clarify on the issue.

Let's take a look...

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Change in Partnership

If one of the partners leaves, or another one joins, or even if one of them dies, then your partnership ends, and you'll be required to create a new partnership agreement.

But you DON'T need to cancel the VAT registration of your old partnership when your partners change.

You also don't need to apply for a new VAT number in your new partnership.

BUT you MUST complete a VAT128 form and submit it to SARS.

Formation of a new partnership

If you form a new partnership, you MUST then change the registration of any fixed properties (i.e. any tangible property which is used to produce income) under your old partnership, and register them in the name of your new partnership. Transfer duty will be payable.

This is unless the transaction can qualify for the VAT zero rating, as the transfer of a going concern.

BUT if the partnership changes to a sole trader, then you must deregister the partnership's VAT registration, and the sole trader must now apply for a new VAT number.

Here's an example…

William and Harry are sole traders, and they combine to form a partnership.

They must now apply for a new VAT number.

Peter joins the partnership and the name of the company changes, but the partnership still retains the old VAT registration and number.

William later decides to leave the partnership and the name of the company changes again, and still the partnership retains its old VAT registration and number.

Harry and Peter then leave the partnership, after which Peter decides to carry on the business under his own name, as a sole trader.

Peter will now be required to get a new VAT registration and number.
 
NOTE: You are entitled to request a new VAT registration and number if the partners change.
 
*To learn more on partnerships and VAT, such as on the forms required, page over to chapter P 14: Partnerships and VAT in your Practical VAT Loose Leaf Service handbook, or click here to order your copy today. 

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