Guidance

Transfer a business as a going concern and VAT (Notice 700/9)

When and how to account for VAT when you transfer a business as a going concern (TOGC).

Detail

This notice cancels and replaces Notice 700/9 (April 2008).

1. Overview

1.1 This notice

This notice explains whether the transfer of a business should be treated as a ‘transfer of a business as a going concern’ (TOGC) for VAT purposes. It also explains the VAT treatment in each circumstance. It’ll help you ensure that the correct amount of VAT, when chargeable, is properly accounted for and paid.

You should read this notice if you’re selling or otherwise transferring a business, or part of a business. It will also help if you’re acquiring a business. In certain circumstances special TOGC rules apply and the sale will not be treated as a supply for VAT purposes, so no VAT should be charged. The sales affected will typically be those where a business is sold as a ‘going concern’ or where the sale is of part of a business that can be operated separately.

It’s important to note that the transfer of a business that does not qualify to be treated as a TOGC may still render the buyer liable for VAT registration. Further information on this is contained in VAT Notice 700/1: should I be registered for VAT?.

The law refers to the transferor (the person selling the business) and the transferee (the person buying the business). To avoid confusion this notice refers to these as the ‘seller’ and the ‘buyer’ respectively.

1.1.1 The changes

1.1.2 Examples in this notice

Many of the examples of transfer set out in this notice are those involving property, premises or property rental business, whereas there are not many on other trades or situations. This reflects a certain level of complexity in these types of business that continue to give rise to issues and requests for clarification and guidance.

The inclusion of all permutations of transfers by all the different types of business would be impractical and make this notice excessively large for the range of customers that it’s intended to inform.

It’s important that each transfer is considered individually for TOGC on the basis of its facts and circumstances so a ‘one size fits all’ approach is not appropriate. Further examples of the application of the TOGC conditions are contained in the HMRC VAT Transfer of a going concern Manual.

1.1.3 Force of law

Section 10 contains an example of the VAT 68 form which carries force of law under the VAT Regulations 1995, Regulation 6(d).

1.2 TOGC for VAT purposes

Normally the sale of the assets of a VAT-registered or VAT registerable business will be subject to VAT at the appropriate rate. But, for a TOGC for VAT purposes it’s the sale of a business including assets which must be treated, by law, as ‘neither a supply of goods nor a supply of services’ by meeting certain conditions. Where the sale meets the conditions then the supply is outside the scope of VAT and therefore VAT is not chargeable.

The TOGC rules are mandatory and not optional. So it’s important to establish from the outset whether the sale is or is not a TOGC.

The main UK law concerning the TOGC is The VAT (Special Provisions) Order 1995 (SI 1995/1268 Art 5). The UK law is derived from Articles 19 and 29 of the Principal VAT Directive (Directive 2006/112/EC). But there are several other legal provisions relating to TOGC. These are Sections 44, 49, 94(6) and Para 8 Schedule 4 VAT Act 1994.

We see the main conditions as being:

  • the assets must be sold as part of the transfer of a ‘business’ as a ‘going concern’
  • the assets are to be used by the buyer with the intention of carrying on the same kind of ‘business’ as the seller (but not necessarily identical)
  • where the seller is a taxable person, the buyer must be a taxable person already or become one as the result of the transfer
  • in respect of land which would be standard rated if it were supplied, the buyer must notify HMRC that they have opted to tax the land by the relevant date, and must notify the seller that their option has not been disapplied by the same date
  • where only part of the ‘business’ is sold it must be capable of operating separately
  • there must not be a series of immediately consecutive transfers of ‘business’

Our view of what these mean in practice as well as other rules and effects of TOGC treatment are dealt with in this notice and in our internal guidance.

Note: for the purposes of this paragraph the word ‘business’ has the meaning set out in section 94 VAT Act 1994 and ‘going concern’ has the meaning that at the point in time to which the description applies, the business is ‘live or operating’ and ‘has all parts and features necessary to keep it in operation, as distinct from its being only an inert aggregation of assets’. (But also see paragraph 2.3.1.)

1.3 When it is not a TOGC

Examples of situations that do not fall under the TOGC provisions include:

  • there is no transfer of a business as a going concern through changes in the constitution of a partnership
  • if there has been no transfer of assets there is nothing to which the TOGC provisions can apply
  • when there is a transfer of shares in a limited company from one person to another, the assets still belong to the limited company, so there is no change in the ownership of the assets so no supplies to which the TOGC provisions could apply
  • where a VAT-registered farmer transfers their business as a ‘going concern’ to a farmer who’s certified under the agricultural flat rate scheme there can be no TOGC for VAT since the buyer is not registered or registerable for VAT (see VAT Notice 700/46: VAT Notice 700/46: agricultural flat rate scheme)

If you’re registered for VAT but you have not yet made taxable supplies, the transfer of your business might not be the transfer of a ‘going concern’. But, where enough preparatory work has been undertaken prior to making taxable supplies there may be a business capable of being transferred as a going concern. Section 6 gives examples of transfers of property, some of which are transfers of businesses as a going concern.

1.4 Business assets

For there to be a transfer capable of being treated as a TOGC it must include the transfer of business assets. Business assets can include stock in trade, machinery, goodwill, premises and fixtures and fittings. Where the assets are transferred from one person to another the transfer may, subject to the meeting of the conditions, be covered by the TOGC provisions. For TOGC provisions to apply it is important that the assets, whatever they are and however many are to be transferred, put the buyer in possession of a business, rather than simply assets. The assets of a business may be transferred in a number of situations.

Examples of common transfers are:

  • the assets may be bought by another person and the existing business may cease to trade
  • the existing owner may die or retire and the business assets be taken over by another person
  • part of an existing business may be sold to another person
  • the assets may be transferred to a new legal entity, for example, a sole proprietor may take on a partner, or form a limited company

This list is not exhaustive.

1.5 TOGC rules

The TOGC provisions are intended to simplify accounting for VAT when a business changes hands. The main purpose is to:

  • relieve the buyer of a business from the burden of funding any VAT on the purchase, thereby helping businesses by improving their cash flow and avoiding the need to separately value assets which may be liable at different rates or are exempt and which have been sold as a whole
  • protect government revenue by removing a charge to tax and entitlement to input tax where the output tax may not be paid to HMRC, for example, where a business charges tax, which is claimed as input tax by the new business but never declared or paid by the old business

2. How to apply the TOGC rules

2.1 This section

This section deals with the special rules which apply to a transfer of a business so that the transfer of some, or all of the assets, should be treated as a TOGC and not as a taxable supply.

2.2 Why it’s important to get the tax treatment right

The TOGC rules are compulsory. You cannot choose to ‘opt out’. So, it’s very important that you establish from the outset whether the business is being sold as a TOGC. Incorrect treatment could result in corrective action by HMRC which may attract a penalty or interest.

If all the conditions in paragraphs 1.2 and 2.3 are met, the TOGC rules apply and VAT must not be charged or accounted for on the assets transferred (except, in certain circumstances) on the premises, for example, land or property used in the business. Details of the circumstances in which you must charge VAT on the premises are set out in paragraph 2.4).

If VAT is charged when it should not have been the:

  • buyer will not be able to reclaim this amount as input tax, because there was no taxable supply
  • seller will have to cancel any tax invoice issued and provide the new owner with a refund of the VAT charged, normally this will be by issue of a credit note or document giving similar effect

2.3 Conditions to treat a transfer as a TOGC

If all of the conditions listed at paragraph 1.2 and in this section are met, the transfer of the assets of the business, other than premises, is a TOGC. It is not a taxable supply and you, as the seller, must not charge VAT. Paragraph 2.4 explains whether you need to charge tax on the transfer of premises.

2.3.1 Business activities

The effect of the transfer must be to put the new owner in possession of a business which can be operated as such. The term ‘business’ means a business activity recognised as such in VAT law. For example, some of the activities of charities or local authorities are not considered to be business (see the VAT guide (Notice 700) for more information). A sale of ‘capital assets’ is not in itself a transfer of a business as a going concern. But, if the effect of the sale is to put the buyer in possession of a business, it’s a TOGC, even if the assets are transferred on different dates.

The business, or part business, must be a ‘going concern’ at the time of the transfer. It can still be a ‘going concern’ even though it’s unprofitable, or is trading under the control of a liquidator or administrative receiver, or a trustee in bankruptcy, or an administrator appointed under the Insolvency Act 1986.

2.3.2 Use of assets - same kind of business

The assets you’re transferring must be intended for use by the new owner in carrying on the same kind of business. If the buyer intends to use the assets to carry on a different kind of business you must charge VAT in the normal way.

If the buyer intends in due course to carry on a different kind of business using the assets bought, the sale may still be a TOGC if the buyer continues the old business initially.

The test is whether the buyer intends to carry on the business they’ve bought. This test does not lend itself to a set time-span, because ‘continuation of a business’ can vary between different types of activity.

See section 7 for examples.

2.3.3 Consecutive transfers of business

There must not be a series of immediately consecutive transfers of the business. Where A sells its assets to B who immediately sells those assets on to C, because B has not carried on the business the TOGC provisions do not apply to any of the transactions. This means that the sales take their normal VAT liability (taxable or exempt). Such immediate transfers often occur in property transactions where A contracts to sell property to B, and B ‘sub-sells’ the property to C with both contracts being completed by a single transfer from A to C.

Different rules apply in Scotland, to the transfer of a property rental business. Under Scottish law the disposition of the ‘ownership of the property’ (‘dominium utile’) may been seen to be direct from A to C, and the TOGC provisions may apply, subject to meeting the other conditions in this paragraph and paragraph 2.4.

2.3.4 VAT registration

Where the seller of the business or part of the business is registered for VAT, the buyer must be registered or at the date of the transfer be required to be registered for VAT because all of the conditions for compulsory registration are met, or have been accepted for voluntary registration. This condition is not met if the buyer is not registered and is not required to be registered for VAT. This could either be because:

(a) at the date the transfer takes place, the buyer does not expect the value of their taxable supplies in the next 12 months to be above the deregistration limit, for example the buyer intends to reduce trading by introducing shorter working hours; or

(b) the seller was not required to be registered but was registered voluntarily at the date of the transfer. So at that date, the buyer is not required to register because the value of their taxable supplies in the 12-month period then ended is not above the registration limit.

In such circumstances, unless the buyer has been accepted for voluntary registration, the conditions for the transfer to be treated as a TOGC are not met and the sale takes its normal liability. Where only part of the business is being transferred, the buyer must look at the turnover of this part to determine whether he must be registered. Further details about registration can be found in VAT Notice 700/1: should I be registered for VAT?.

2.3.5 Seller not VAT registered

There can be a TOGC where the seller is not registered for VAT. For example, because the seller is trading below the registration limit or making wholly exempt supplies. A TOGC is possible in both these circumstances. So the sale of a non-VAT registered business which includes trading stock, the value of which might otherwise take the trader over the registration limit, will not do so because it can be treated as a TOGC and therefore not a supply.

But, where the transfer of assets is a relevant supply for VAT registration purposes, the unregistered seller will have to register and account for VAT on the transfer of assets. Further information about relevant supplies can be found in VAT Notice 700/1: should I be registered for VAT?.

2.3.6 No significant break in trading

There must be no significant break in the normal trading pattern before or immediately after the transfer. The ‘break in trade’ needs to be considered in the context of the type of business concerned, this might vary between different types of trade or activity. For example, HMRC does not consider that where a ‘seasonal’ business has closed for the ‘off-season’ as normal at the time of sale, that there has necessarily been a break in trade. In addition, a short period of closure that does not significantly disrupt the existing trading pattern, for example, for redecoration, will not prevent the business from being transferred as a TOGC.

2.3.7 Transfer of part of your business

If you’re transferring only part of your business, that part must be able to operate alone. It does not matter whether it will be operated separately from any other businesses the buyer carries on. An ‘in-house’ function is not a ‘business’ for TOGC condition purposes when it only operates internally. The assets of the part of the business you transfer must have been used to make supplies, they must not merely be used for the overheads of your business (see also paragraph 7.2).

2.3.8 Transfers involving land and property

If the transfer of the land or property would normally be a taxable supply, both the seller and the buyer may need to meet certain conditions for it to be included as part of the TOGC. This is explained in more detail at paragraph 2.4.

2.4 VAT when land or buildings are transferred as part of a TOGC

A TOGC will often involve the transfer of land and buildings. There are extra rules to determine whether VAT should be charged on the transfer of land and buildings - even if the rest of the transfer does qualify for TOGC treatment.

If all the conditions in paragraph 2.3 are met and the buyer has complied with the following requirements, the transfer of land and buildings can be part of a TOGC and therefore not subject to VAT.

If the seller is transferring land or buildings on which they have elected to waive exemption (opted to tax), which are new (less than 3 years old), unfinished buildings or civil engineering works which would ordinarily be standard rated, and the buyer has notified to HMRC their election to tax the land or buildings by the ‘relevant date’, and has notified the seller by the relevant date that their election will not be disapplied, then the transfer of the land or buildings can be included in the TOGC (see paragraph 2.4.1 regarding option to tax and ‘relevant date’).

If the seller is transferring land or buildings on which there is no election to tax, and the supply would not be otherwise standard rated, in other words, if the supply is zero-rated or exempt then the buyer is not required to opt to tax and there ceases to be a requirement to notify that the option has not been disapplied. In these circumstances the transfer of the land or buildings can be included in the TOGC.

Note on responsibility for applying correct treatment - option to tax by the buyer

The seller is responsible for applying the correct VAT treatment and may be required to support their decision. If the transaction is to be treated as a TOGC the seller must be satisfied that the buyer’s election to tax is in place by the relevant date. They may therefore consider asking the buyer for evidence of this, such as a copy of the notification letter. The seller must have the buyer’s notification of the non-disapplication of the election to tax and may find it prudent to obtain this in writing.

2.4.1 Election to waive exemption (option to tax)

The option to tax by the buyer, must be notified to HMRC in writing no later than the relevant date and must apply from that time. You should note that the relevant date is the time of the supply. For VAT purposes the time of supply is normally the date of the transfer, but will also include receipt of a deposit that may otherwise have created a tax point. A tax point is not created by the receipt of a deposit by a third party acting as an independent stakeholder (as opposed to an agent of the seller) until the money is released to the vendor. Further information on tax points this can be found in the VAT guide (Notice 700).

Where the written notification of the option to tax is sent to HMRC by mail, the notification must be properly addressed, pre-paid and posted on or before the relevant date. VAT Notice 742A: opting to tax land and buildings fully explains the option to tax.

2.4.2 Disapplication of the buyer’s option to tax - the anti-avoidance measure

An option to tax can be disapplied as a result of an anti-avoidance measure. Where an option is disapplied this means it will cease to have effect in respect of certain supplies. The anti-avoidance measure only has effect where land and buildings are occupied for something other than fully taxable business purposes and where the land or building is a capital item for the purposes of the Capital goods scheme (CGS) (see VAT Notice 706: partial exemption and Capital goods scheme (Notice 706/2)). The measure is explained fully in VAT Notice 742A: opting to tax land and buildings.

Changes were made to the measure from 18 March 2004. From the same date the TOGC rules were also amended. Under the new rules for freehold transfers of new buildings and civil engineering works (less than 3 years old) and land and buildings on which the seller has exercised an option to tax, can only be included within a TOGC where:

  1. the buyer confirms that an option to tax has been made and notified by the relevant date, and

  2. the buyer makes a declaration to the seller that their option will not be disapplied by the anti-avoidance provisions (see VAT Notice 742A: opting to tax land and buildings).

Where the buyer fails to do either point 1. or 2., the transfer will fall outside of the TOGC provisions and the supply will be subject to VAT. But, the transfer of other business assets may still qualify to be treated as a TOGC.

The following tables will help you decide on whether land and buildings can be included in the transfer of assets as part of a TOGC.

Commercial land or building, ordinarily exempt

Has seller opted to tax (building over 3 years old)? Has the buyer opted to tax? Will the buyer’s option to tax be disapplied? Transfer of a going concern provisions met?
Yes Yes Yes No
Yes No Not applicable No
Yes Yes No Yes
No No Not applicable Yes
No Yes Yes Yes
No Yes No Yes

New building (less than 3 years old), ordinarily standard rated

Has seller opted to tax? Has the buyer opted to tax? Will the buyer’s option to tax be disapplied? Transfer of a going concern provisions met?
Yes Yes Yes No
Yes No Not applicable No
Yes Yes No Yes
No No Not applicable No
No Yes Yes No
No Yes No Yes

2.5 The rules when a ‘property rental business’ is transferred

Section 6 gives examples of circumstances concerning the transfer of land or property where there may (or may not) be a transfer of a business of ‘property rental’ as a ‘going concern’. In those cases where there has been such a transfer, the conditions of paragraphs 2.3 and 2.4 must still be met for there to be a TOGC and for the supply of assets to be ignored for VAT purposes.

An optional statement of practice is available where a property rental business is being transferred to a nominee acquiring title for a named beneficial owner, see section 8.

Where only the beneficial ownership of a property rental business is transferred and the legal title is retained by the seller there may be a TOGC. If the seller’s ownership is reduced to being no more than that of a bare trustee, it’s accepted that the property, together with its lettings may be transferred as a ‘going concern’.

Where there’s a transfer of a beneficial interest from A to B to C on the same day this is seen as a series of consecutive transfers, even where the legal title is transferred directly from A to C. The condition as per paragraph 2.3.3 is not met and TOGC does not apply to any of the transactions.

Different rules apply in Scotland, but, to the transfer of a property rental business, where it’s possible to ‘dispone’ ownership. Under Scottish law the disposition of the ‘ownership of the property’ may been seen to be direct from A to C, and the TOGC provisions may apply, subject to meeting the other conditions in paragraph 2.3 and 2.4.

When a tenanted building is sold or a lease is assigned mid-way through a rent period, an adjustment is normally made to the consideration at the point of completion. These adjustments may be for rent collected, or for water and power paid for in advance prior to the sale or assignment. They are not consideration for any supply and are outside the scope of VAT. For VAT purposes the consideration for the sale of the building or the assignment of the lease is the full value of the supply before any adjustment is made (see VAT Notice 742: land and property).

2.6 Deduction of VAT on expenses incurred on the transfer

Although there is no supply for VAT purposes where there is a TOGC, this does not prevent the deduction, subject to the usual rules, of input tax on related expenses (for example solicitors’ fees and estate agents’ costs). There is a distinction between the extent to which the seller and the buyer can deduct such input tax.

2.6.1 Buyer (transferee)

If the buyer acquires assets by way of a TOGC and the assets are to be used exclusively to make taxable supplies, the VAT incurred on the cost of acquiring those assets should be attributed to those taxable supplies and can be recovered in full. If the assets of the acquired business are to be used exclusively to make exempt supplies, none of the input tax on the cost of acquiring those assets can be recovered. But, if the assets are to be used in making both taxable and exempt supplies, any input tax incurred is residual input tax and must be apportioned in accordance with the buyer’s VAT partial exemption method.

2.6.2 Seller (transferor)

The sale of the business as a TOGC is not a supply and the input tax incurred on the cost of selling the business cannot be attributed to it by the seller. These costs are, therefore, treated as a general business overhead. Where the seller’s business is partly exempt the costs, having a direct and immediate link with the whole of the seller’s business activity, are to be apportioned by reference to the seller’s partial exemption method.

But, where part of a business is transferred as a TOGC, and those expenses can be shown to have a direct and immediate link with the transferred part of the business, then those expenses form part of the overheads of that part of the business. Where that part of the business made only taxable supplies then tax is deductible on those expenses. Where that part of the business made only exempt supplies the tax is not deductible.

But, where taxable and exempt supplies were made by that part of the business, then the tax is residual input tax and is attributable to taxable supplies by reference to the seller’s partial exemption method.

In instances, either at paragraphs 2.6.1 or 2.6.2 where the existing partial exemption method fails to achieve a fair and reasonable result, then we would be prepared to approve the use of another method, as long as that method provides for a fair and reasonable recovery of input tax. See VAT Notice 706: partial exemption for further guidance.

3. Rules following a TOGC

3.1 This section

This section explains the rules following a TOGC in relation to:

  • CGS considerations
  • de-registration and goods still owned by the original business
  • transfer of the previous owner’s registration number
  • business records
  • giving away goods or services owned by the previous business
  • Intrastat rules
  • customs authorisations and excise and inland customs approvals

3.2 CGS and how it interacts with the TOGC provisions

The scheme applies where the value of taxable (other than zero-rated) supplies received in connection with the acquisition or creation of any of the items listed below is £250,000 or more. In the case of computers and computer equipment the scheme only applies where the value of the supply is £50,000 or more. The scheme applies to the following:

  • the interest supplied to an owner in land, a building or part of a building
  • a building or part of a building which is subject to a self-supply
  • goods and services received in constructing a building
  • goods and services received in altering a building or constructing an extension or annex
  • the interest supplied to the owner, or the goods and services received in constructing a civil engineering work
  • capital expenditure on supplies of services and of goods affixed to the building in refurbishing or fitting out a building
  • a computer or an item of computer equipment
  • related self supplies if relevant

Items that fall within the scheme are called ‘capital items’.

3.2.1 How the CGS works

Further details of how the CGS operates can be found in Capital goods scheme (Notice 706/2). A summary of the CGS to aid in understanding this section is that the scheme requires that adjustments are made to the input tax claimed in relation to a capital item if within a period of ten successive intervals (each interval normally corresponds with your partial exemption tax year) there’s a change in the extent to which the item is used to make taxable supplies. This period is called the adjustment period.

For computers, items of computer equipment and in cases where the interest supplied in the land and buildings and so on, has less than 10 years to run at the time it is supplied to you, then the adjustment period is only 5 years.

3.2.2 Capital item is transferred as part of a transfer of a going concern

If a capital item is transferred to you as part of a TOGC then you, as the new owner, assume responsibility for any adjustments of input tax required under the scheme for the remainder of the adjustment period. Buyers should therefore confirm with the seller whether any of the assets being transferred are covered by the scheme and details of the adjustments already made. It’s important to be aware that if the purpose to which the asset has been put changes at or after the transfer, the buyer may need to repay some of the input tax claimed by the original owner. Similarly, they may be entitled to recover more tax than that originally claimed.

If the seller has been fully taxable since the acquisition of the capital item and the buyer is and remains fully taxable until the expiry of the adjustment period, then no adjustments are required under the scheme. It’s only when there’s a change in the extent to which the capital item is used in making taxable and exempt supplies, within the adjustment period, that adjustments have to be made.

3.2.3 Partial exemption clawback or payback and how it interacts with the TOGC provisions

There may be occasions where the intended use of goods or services on which you based your claim to input tax changes. Where you change your intention before you use the goods or services, or, where you actually use the goods or services for a different purpose, the ‘clawback’ or ‘payback’ provisions may apply. If a business is transferred as a TOGC the new owner becomes responsible for any payback or clawback adjustments that become necessary.

Clawback applies where:

(a) you’ve claimed input tax on goods or services because you intended to use them in making taxable supplies but in the event you use them, or form an intention to use them, in making either exempt supplies or both taxable and exempt supplies; or

(b) you’ve claimed input tax on goods or services because you intended to use them in making both taxable and exempt supplies but in the event you use them, or form an intention to use them, in making only exempt supplies.

And for both (a) and (b) where the change of intention occurs within 6 years of the beginning of the period covered by the VAT Return in which the original intention was formed.

Payback applies where:

(a) you have not claimed input tax on goods and services because you intended to use them in making exempt supplies but in the event you use them, or form an intention to use them, in making taxable supplies or both taxable and exempt supplies; or

(b) you have not claimed input tax on goods or services because you intended to use them in making both taxable and exempt supplies but in the event you use them, or form an intention to use them, in making only taxable supplies.

And for both (a) and (b) where the change of intention occurs within 6 years of the beginning of the period covered by the VAT Return in which the original intention was formed.

Further details on payback and clawback can be found in VAT Notice 706: partial exemption.

3.3 How to treat business assets that are not transferred if you’re de-registering from VAT

If you transfer your business as a TOGC and are not going to continue trading in another capacity you will need to cancel your VAT registration using form VAT7. But, if you are cancelling your registration and have any goods which you’ve claimed input tax on and are not transferring with the business, you will normally have to account for VAT on these assets. VAT Notice 700/11: cancelling your registration tells you more about this. You should be aware that if you fail to notify HMRC of any changes affecting your registration details within 30 days of them occurring you may become liable to a financial penalty.

If, when you cancel your registration, you have a capital item covered by the scheme and which is still within its adjustment period you will need to make a final adjustment. Capital goods scheme (Notice 706/2) tells you more about this.

3.4 Reallocation of the VAT registration number from seller to buyer

In certain circumstances the buyer can apply to keep the seller’s VAT registration number. As part of that application both the seller and the buyer must agree to the consequences of reallocation.

The transfer of a VAT registration number can be requested using HMRC online services or by a completing form VAT68.

Online application

The buyer of the business can view the consequences of requesting the transfer a VAT registration number when they register for VAT using the HMRC online service.

The seller can view the consequences of requesting the transfer of a VAT registration number when they complete the relevant details in the online service - Change Customer Details.

If either the buyer or seller do not want to use the online service then they should complete the relevant sections of form VAT68.

Form VAT68

The consequences of reallocation for both the buyer and seller are set out in form VAT68.

The buyer will also need to complete form VAT1 to register.

If the seller completes a form VAT68 agreeing to transfer their VAT registration number they must not complete form VAT7.

If you fail to notify HMRC of any changes affecting your registration details within 30 days of them occurring you may become liable to a financial penalty.

Consequences of transferring a VAT registration number are legally binding on both parties and include the transfer of any VAT liability to the buyer. The buyer’s liable for any outstanding VAT from the seller’s registration including VAT on stocks and assets kept by the seller. But the seller is no longer entitled to any repayments of VAT or unclaimed input tax whether these amounts refer to periods before or after the transfer.

The consequences also include the transfer of entitlement to unclaimed VAT bad debt relief on debts incurred by the seller of the business. But, the buyer also takes the requirement to repay input tax claimed by the seller on supplies he received and which have subsequently become the subject of a bad debt relief claim made by the supplier or if the supplies remain unpaid after 6 months.

Further details about bad debt relief can be found in VAT Notice 700/18: relief from VAT on bad debts.

If the registration number is reallocated, the seller must still follow the procedure set out in VAT Notice 700/11: cancelling your registration.

3.4.1 Special VAT arrangements applying to the seller’s registration

If any special arrangements apply to the seller’s registration, for example, self-billing, a partial exemption special method, or a Notice of Direction for sale by retail at open market value, they may need to end when the business is transferred. In such cases, or if the use of a retail scheme or excise and inland customs registration or approval is involved, you should ask our advice service or your allocated point of contact for guidance. In any case where a simplification scheme is in use both the seller and buyer of a business are advised to check the published rules for such schemes to ensure that treatment is correct.

3.5 VAT registration number not reallocated from seller to buyer

Where the VAT registration number of the seller of a business or part of a business is not transferred to the buyer, there is no transfer of VAT liability to the buyer and the buyer is not liable for any outstanding VAT from the seller’s registration.

There is also no transfer of entitlement to unclaimed VAT bad debt relief on debts incurred by the seller of the business because the supplies to which the relief might apply were not made by the buyer.

The seller retains the requirement to repay input tax claimed by them on supplies they received and which have subsequently become the subject of a bad debt relief claim made by the supplier or if they remain unpaid after 6 months. Further details about bad debt relief can be found in Relief from VAT on bad debts (Notice 700/18).

If the seller is continuing to trade then they’re still subject to the requirement to notify HMRC of the sale or transfer of the business (see the VAT guide (Notice 700)).

If the seller is ceasing to trade or is no longer registerable as a result of the transfer then they must follow the procedure set out in VAT Notice 700/11: cancelling your registration. See [paragraph 3.3].

3.5.1 Special VAT arrangements applying to the seller’s registration

If any special arrangements apply to the seller’s registration, for example, self-billing, a partial exemption special method, or a Notice of Direction for sale by retail at open market value - they may in many cases end when the business to which they relate is transferred. In such cases, or if the use of a retail scheme or excise and inland customs registration or approval is involved, you should ask our advice service or your allocated officer for guidance. See paragraph 3.4.1 for reference to further guidance on specific potential situations.

3.6 Business records

What happens to business records will depend on whether the buyer has taken on the seller’s VAT registration number.

In respect of all transfer contracts entered into before 1 September 2007.

The business records that had to be kept for VAT purposes by the seller had to be transferred to the new owner. The buyer took over the obligation to keep and preserve them. But, if the seller needed to retain the records they could apply to HMRC for permission to do so. If permission was granted, they should still have made available to the buyer the information needed to comply with their duties under the VAT Act.

In respect of all transfer contracts entered into on or after 1 September 2007.

The seller of a business (or part business) sold as a TOGC retains the business records, unless the VAT registration number is also transferred. But, the seller must make available to the buyer the information necessary for the buyer to comply with their duties under the VAT Act.

If the buyer is unable to obtain this information from the seller, then HMRC can disclose to the buyer the information HMRC holds that is necessary for the buyer to comply with duties under the VAT Act. HMRC will advise the seller of its intention to disclose information to the buyer thereby providing the opportunity to identify any confidentiality issues.

3.7 If you give away goods or services owned by the previous business

The buyer may be liable for VAT on the deemed supply of assets taken into private use or disposed of as gifts, where the assets were transferred to them and the seller originally reclaimed input tax on the purchase of those assets - see the VAT guide (Notice 700).

Under the normal rules, when a business gives away goods or services on which input tax has been recovered, VAT is due on that disposal. Business gifts costing £50 or less or free samples are exceptions to this rule. Where goods and services are transferred as part of a TOGC, and a previous business has had entitlement to input tax on those supplies, output tax is still due on any subsequent free supply of those goods or services by the buyer.

3.8 Intrastat rules

VAT-registered businesses are required to complete statistical Supplementary Declarations (SDs) if their intra-EC trade exceeds annually set value thresholds for either dispatches (exports) or acquisitions (imports) of goods.

When the VAT registration of a trader responsible for providing SDs is amended as a result of a change of ownership, name, address, legal status or similar change that does not significantly affect their intra-Community operations, then the new VAT-registered trader keeps the legal responsibilities and obligations to continue to provide SDs.

3.9 TOGC interaction with customs authorisations

It’s important to note that the treatment of a transfer of a business as a TOGC for VAT purposes may well give rise to registration issues. The transfer of the VAT registration number by form VAT68 as per paragraph 3.4 does not mean that registration for other duties or taxes has similarly been transferred. Generally registrations or approvals will need to be applied for again. If you’re a seller or a buyer of a business and are subject to these regimes you are advised to contact your issuing authority within HMRC or contact the VAT: general enquiries helpline for advice on the effect.

4. VAT groups and TOGCs

4.1 Transfers of businesses between members of the same VAT group

The formation of a VAT group creates a single person for VAT purposes and as such any supply by a member of a VAT group is considered to be made by the representative member of the group. Therefore any assets transferred by a group member as part of the transfer of a going concern are considered to be transferred by the representative member.

The transfer of assets within a VAT group, like most supplies between the members of a VAT group, is disregarded for VAT purposes.

4.2 Transfers made to persons outside the VAT group

There cannot be a TOGC when the sole activity of the business transferred is the making of supplies from one group member to another. But, if supplies are also being made to businesses outside of the VAT group, a TOGC is possible.

4.3 Transfers made to a VAT group

Where a business is sold and the buyer is part of a VAT group and uses the new acquisition simply to make supplies to VAT group members, the business has effectively ceased and it cannot be treated as a TOGC. But, if supplies are also being made to businesses outside of the VAT group, a TOGC is possible. For example:

Situation Status
The buyer of a property rental business is a member of the same VAT group as the existing tenant Not a TOGC
A VAT group member sells a property currently being rented to a another group member to a third party Not a TOGC
A property rental business is sold where the tenant who’s a member of the outgoing landlord’s VAT group is only one of a number of tenants Can be a TOGC
A property rental business is sold where the tenant who’s a member of the buyer’s VAT group is only one of a number of tenants Can be a TOGC

5. Members of a partly exempt VAT group

5.1 This section

This section provides information on the requirements for a new owner who’s a member of a partly exempt VAT group acquiring a business as a TOGC.

5.2 General rules for partly exempt VAT groups

If you’re a member of a partly exempt VAT group and you acquire business assets as part of a TOGC, you must treat these assets as being both supplied to the group and supplied by the group - that is, a self-supply is triggered. In practice this means that the representative member must account for output tax in relation to the supply by the group and recover the input tax incurred in relation to the supply to the group in accordance with the partial exemption method in operation. But, the input tax cannot be attributed to the self-supply itself.

5.2.1 Exclusions

The self-supply will not be triggered in relation to:

  • any assets which were assets of the previous owner more than 3 years before the date of the transfer
  • goodwill (for example, unidentifiable goodwill, use of a trademark or trading name, the sole right to trade in a particular area, and so on)
  • any assets which are zero-rated or exempt (for example zero-rated or exempt freehold or leasehold interests in land)
  • or items which fall within the CGS, for further details of items covered by the CGS see paragraph 3.2 and Capital goods scheme (Notice 706/2)

The self-supply made by the representative member must not be taken into account when working out how much input tax the VAT group is entitled to recover.

5.3 Value for VAT purposes of the supply made to and by the representative member

The value of the supply by, and to, the representative member, is its open market value. If the previous owner is unconnected with your group, this will normally be the consideration you paid for the assets on which tax is due. If VAT is not due on some of the assets, the consideration must be apportioned fairly between the standard-rated assets and other assets. The paragraph on mixed supplies in the VAT guide (Notice 700) tells you how to do this.

5.4 Circumstances when VAT due can be reduced

HMRC can reduce the VAT chargeable in relation to the self-supply if you can produce satisfactory evidence to show that the previous owner did not recover all of the input tax incurred on the original purchase (for example, if they were partly exempt or the input tax was ‘blocked’, for example, on the purchase of a car).

In a case where the seller’s partial exemption recovery rate (during the partial exemption tax year in which the assets were purchased) is equal to or less than the buyer’s recovery rate (during the partial exemption tax year in which the assets were acquired) the VAT charge will be reduced to nil, although no tax will be refunded.

If you consider that you have evidence to show that the tax due should be reduced you should consult our advice service.

6. Transferring a property business as a TOGC

6.1 This section

This section provides guidance on when a property can be transferred as a TOGC.

6.2 Examples of when a property business can be transferred as a TOGC

If you:

  • own the freehold of a property which you let to a tenant and sell the freehold with the benefit of the existing lease, a business of property rental is transferred to the buyer, this is a business transferred as a TOGC even if the property is only partly tenanted, similarly, if you own the lease of a property (which is subject to a sub-lease) and you assign your lease with the benefit of the sub-lease, this is a business transferred as a TOGC
  • own a building where there’s a contract to pay rent in the future but where the tenants are enjoying an initial rent free period, even if the building is sold during the rent free period, you’re carrying on a business of property rental
  • granted a lease in respect of a building but the tenants are not yet in occupation, you’re carrying on a property rental business
  • own a property and have found a tenant but not actually entered into a lease agreement when you transfer the freehold to a third party (with the benefit of a contractual agreement for a lease but before the lease has been signed), there’s enough evidence of intended economic activity for there to be a property rental business capable of being transferred
  • are a property developer selling a site as a package (to a single buyer) which is a mixture of let and unlet, finished or unfinished properties, and the sale of the site would otherwise have been standard-rated, then subject to the buyer opting to tax for the whole site, the whole site can be regarded as a business transferred as a going concern
  • own a number of let freehold properties, and you sell one of them, the sale of this single let or partly let property can be a TOGC of a property rental business
  • have a partially-let building, this is capable of being a property rental business, providing that the letting constitutes economic activity, this may include electricity sub-stations or space for advertising hoardings providing that there is a lease in place
  • purchase the freehold and leasehold of a property from separate sellers without the interests merging and the lease has not been extinguished, providing you continue to exploit the asset by receiving rent from the tenant, then such a transaction can be a TOGC

6.3 Examples where there is not a TOGC

If you:

  • are a property developer and have built a building and you allow someone to occupy temporarily (without any right to occupy after any proposed sale) or you’re ‘actively marketing’ it in search of a tenant, there is no property rental business being carried on
  • own the freehold of a property and grant a lease, even a 999-year lease, you are not transferring a business as a going concern, you’re creating a new asset (the lease) and selling it while retaining your original asset (the freehold), this is true regardless of the length of the lease - similarly, if you own a headlease and grant a sub-lease you are not transferring your business as a going concern
  • sell a property where the lease you granted is surrendered immediately before the sale, your property rental business ceases and so cannot be transferred as a going concern - even if tenants under a sublease remain in occupation, when the lease is brought to an end the property rental business carried on by the former freeholder has ceased and cannot be transferred
  • sell a property freehold to the existing tenant who leases the whole premises from you, this cannot be a transfer of a going concern because the tenant cannot carry on the same business of property rental, this would remain the case even if the new freeholder vacated the property on acquisition and found a new tenant since when the lease is brought to an end the property rental business carried on by the former freeholder has ceased
  • have granted a lease in respect of a building and the tenant is running a business from the premises, the tenant then sells the assets of their business as a going concern and surrenders their lease to you - you grant the new owner of the business a lease in respect of the building - this is not a transfer by you of a property rental business

6.4 Additional points on the transfer of property and TOGCs

6.4.1 Transfers of a number of sites or buildings

The transfer of a number of sites or buildings where some of the sites or buildings are let, or partially let and some are unlet, needs to be considered on a case by case basis. The nature of the sites or building and their use are all factors for consideration. It’s important to look at whether the assets can be identified as a single business or an identifiable part of a business. In addition all the conditions as set out at paragraphs 1.2 and 2.3 of this notice would need to be met. For example, the sale of a chain of shops or pubs could be a TOGC whereas the sale of a grouping of disparate properties might not.

7. The definition of ‘same kind of business’

7.1 Trading activities after a business is transferred

When selling your business assets, you must check that the buyer intends to carry on the same kind of business before the sale can be ignored for VAT purposes under the TOGC rules.

Common areas of difficulty include companies which have more than one trading activity. For example, a brewery is in business selling beers, wines and spirits to the public through their managed house outlets. It’s also in business renting properties to tenants (where the tenants are selling to the public). So, for example, if a brewery was leasing a pub to tenants, and then sold the business to someone who was to run the pub themselves, then it would not be a TOGC, the brewery had a business of renting the property, the new owner has a business of running a pub, although the new owner may need to be registered for VAT from the date the pub was sold to them by the brewery - see VAT Notice 700/1: should I be registered for VAT? for further information.

You must therefore check whether the person buying your assets intends to operate the business in the same way as you.

7.2 Examples of the same kind of business

If you sell:

  • a restaurant or bar but the buyer is to immediately alter the style of the business, the same kind of business is still being carried on, for example, an Italian restaurant becoming a Mexican restaurant is still a restaurant
  • your business to someone who intends to restructure it such that it will not be the same but they actually continue with your business, even if for a very short period of time, they will have carried on the same kind of business

7.3 Examples of different types of business

If you:

  • grant franchises to operate trading sites, as opposed to operating the actual trading activity of the business, the transferee is not carrying on the same kind of business as you
  • sell your business to a customer who will only use ‘your’ product to support their existing business and will not be making any supplies of ‘your’ product to any third parties, the buyer will not be carrying on the same kind of business

8. Property letting business - statement of practice

8.1 This section reproduces the contents of Business Brief 10/96 dated 5 June 1996

See paragraph 2.5.

This statement of practice about nominee buyers acquiring legal title is optional and may only be applied by persons transferring an interest in land to a person who’s a nominee for a named beneficial owner. The option is not available if the nominee is acting for an undisclosed beneficial owner.

Where the legal title in land is to be held by a nominee for a named beneficial owner, HMRC will, for the purpose of establishing the transfer of a property letting business as a going concern, from 1 June 1996, consider the named beneficial owner of the land and not the nominee acquiring legal title to be the transferee.

The new optional practice allows a person transferring an interest in land to a nominee for a named beneficial owner, with the agreement of that nominee and beneficial owner, to treat the named beneficial owner as the transferee for the purposes of establishing whether there has been a transfer of a going concern. This Business Brief contains an example format that the parties can use to record agreement if they so wish.

Persons transferring an interest in land to a person who’s a nominee for a named beneficial owner will be expected to check the VAT registration and where necessary the VAT elections made by the beneficial owner.

Examples of where a nominee might exist to hold the legal title in property for a beneficial owner are - where the legal title is held by four or fewer persons on trust for a partnership (this example does not arise in Scottish law), where the legal title is held on trust for an unincorporated association, and where the legal title is held on trust for a pension fund.

8.2 Background

HMRC has reviewed its policy whereby the passing of title in property between legal owners solely determined whether Article 5 of the VAT (Special Provisions) Order 1995 (SI 1995 No 1268) applied in the circumstances in paragraph 8.1.

Strictly, a transfer of a going concern cannot occur where the transferee is a nominee for a beneficial owner because the beneficial owner will be the person carrying on the business, not the nominee. The optional treatment does not disturb any transactions prior to 1 June 1996, but from that date allows a more relaxed approach to be adopted. It is deregulatory and should reduce business costs in the circumstances described.

The option does not need to apply to transactions where the nominee is the transferor of the legal title. In these cases, Paragraph 8 of Schedule 10 to the VAT Act 1994 deems the beneficial owner to be the transferor.

The principles, which are based upon English land law, may also be applied to similar transactions in Scotland and Northern Ireland as necessary.

8.3 Suggested format of Notice of Agreement

The following Notice of Agreement is optional and other clear written evidence of agreement will be accepted by HMRC. The transferor, transferee beneficial owner and nominee should each retain a copy of any written evidence.

8.3.1 Notice of Agreement to adopt Statement of Practice

Property: (address)
Transferor/vendor: (X)
Nominee/buyer: (Y)
Future beneficial owner: (Z)

X, Y and Z confirm that they have agreed to adopt the optional practice set out in Customs & Excise Business Brief 10/96 in relation to the purchase of the property pursuant to an agreement dated ( ) between X and Y.

Following the transfer of the property Y will hold the legal title as nominee for Z, the beneficial owner.

Signed for and on behalf of X:
Signed for and on behalf of Y:
Signed for and on behalf of Z:
Date:

9. Further advice

9.1 HMRC rulings on transfers of business

HMRC do give further advice as outlined and in particular where an unusual aspect has been identified in a potential TOGC. Normally the seller should make the request as it’s their responsibility to determine whether VAT is chargeable or not. It’s important that any request for is made in writing, and contains in full all relevant facts and information and also a clear indication of what aspects of the arrangement give rise to doubt or uncertainty.

There are circumstances where we do not give VAT clearances, including on TOGC cases. These circumstances are listed in the Non-statutory clearance service guidance.

10. Form VAT68 - request transfer of a VAT registration number

Form VAT68 is published by the Commissioners under Regulation 6(1)(d) of the VAT Regulations 1995. It’s the form which must be completed if the seller and buyer of a business want to apply to transfer a VAT registration number.

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Published 6 December 2012