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Vat when buying a website business

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Lately, an increasing number of business people are starting to move from the offline world to the online world, there are an increasing number of people interested in buying a website business, and there are a number of questions regarding the process of buying an online business. Since buying an online business is somehow different than buying a regular business that has different kinds of assets, here are a few details about the acquisition process that may help you get the overall picture.

Our advice is to always look for buying online businesses form a certified broker. You will probably have to complete a non-disclosure agreement, if this is the first time you requested more information; this is needed in order to protect the seller’s information and allows a broker to share you some information.

When reviewing the online business you are interested in buying, make sure you investigate all the details you need, since transparency is very important. After reviewing all materials, you can arrange a meeting or a call with the business owner. Since the demand for online businesses is high, and there is a significant amount of new buyers, you should consider moving fast to make your offer more competitive.

Due Diligence

After the business owner accepted your offer, the due diligence process begins. This process for an online business is a bit different from a classical company, and this can confuse you if it’s the first time you buy an online company. For an online business the due diligence is focused on the following areas: traffic, financials and maintenance (make sure you analyze the owner’s tasks). Since in an online business there are no physical assets to examine, the due diligence for usually takes about 10 business days.

Legal aspects

Usually, the broker will prepare the Asset Purchase Agreement for the website business transaction. Some of the things formalised in the contract are: the consideration terms, the assets and the post-sale training and support.

Transfer & Escrow

Our advice is to always use Escrow to facilitate the transaction. The transfer of assets for a website business means the handing over of domains, website content, graphics, social media accounts and clients database. Typically, the owner offers a four week training period.

VAT when buying an online business

The value added tax (VAT) is applied to most things you purchase in the UK, both in the offline shops and online. New and second-hand goods are taxable, although there are some exceptions. All companies turning over £81,000 on 12 month basis must register for VAT and there are no exceptions. If you exceeded this turnover, you must register for VAT if the products or services you sell are VAT exempt, whether you are a limited company or a sole-trader.

If your budget allows it, it’s always a good idea to hire an accountant to give you advices and to look after the financial side of the online business. He can also offer you advice when it comes to VAT registration, and even look after VAT returns for you. If you can’t hire an accountant at the time, the HMRC’s website will help you with everything you need to know about VAT.

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