Introduction: The law
In basic terms the law provides for the supply of all or some of the assets of a business, or part of a business, to be treated as neither a supply of goods nor a supply of services if certain conditions are met. In these circumstances, the supply is outside the scope of VAT and therefore relieved from tax.
The law refers to the transferor (the person selling the business) and the transferee (the person buying the business). To avoid possible confusion this guidance refers to them as the seller and the purchaser respectively.
UK law is derived from Articles 19 and 29 of the Principal VAT Directive (Directive 2006/112/EC):
“Article 19 - Supply of Goods
In the event of a transfer, whether for a consideration or not or as a contribution to a company, of a totality of assets or part thereof, Member States may consider that no supply of goods has taken place and that the person to whom the goods are transferred is to be treated as the successor to the transferor.
Member States may, in cases where the recipient is not wholly liable to tax, take the measures necessary to prevent distortion of competition. They may also adopt any measures to prevent tax evasion or avoidance through the use of this Article.
Article 29 - Supply of Services
Article 19 shall apply in like manner to the supply of services.”
Articles 19 and 29 confer on Member States a discretion as to whether to allow the transfer of business assets to be treated as neither a supply of goods nor services and thus outside the scope of VAT. If the Member State chooses to legislate for the effect of Articles 19 and 29, as the UK has, it must do so to the full effect of the Articles. However, Member States have the option to impose additional conditions it considers necessary to prevent tax evasion or avoidance.
By virtue of section 4(1) VAT Act 1994 VAT is chargeable on a supply of taxable goods or services made by a taxable person in the course or furtherance of his business. Section 5(3)(c) of the VAT Act 1994 gives powers to describe in a Treasury Order those transactions to be treated as neither a supply of goods nor a supply of services, i.e. a TOGC.
The VAT (Special Provisions) Order 1995 (SI 1995/1268) is the main legislation, but there are several other legal provisions relating to TOGC. These are:
- Section 44 VAT Act 1994 - concerns TOGCs into partly exempt VAT groups. See [VTOGC5200](https://www.gov.uk/hmrc-internal-manuals/vat-transfer-of-a-going-concern/vtogc5200);
- Section 49 VAT Act 1994 and Regulation 6 of the VAT Regulations 1995 concern registration, transfer of records and transfer of VAT registration number;
- Section 94 (6) VAT Act 1994 concerns whether a TOGC is a supply made in the course or furtherance of the business; and
- Paragraph 8 (1) Schedule 4 VAT Act 1994.concerns the treatment of assets when a person ceases to be a taxable person.
There is further legislation with respect to registration and deregistration for VAT which is explained in the VAT registration guidance.
VAT (Special Provisions) Order 1995 (SI 1995/1268)
Value Added Tax (Special Provisions) Order 1995
(1) Subject to paragraph (2) below, there shall be treated as neither a supply of goods nor a supply of services the following supplies by a person of assets of his business—
(a) their supply to a person to whom he transfers his business as a going concern where—
(i) the assets are to be used by the transferee in carrying on the same kind of business, whether or not as part of any existing business, as that carried on by the transferor, and
(ii) in a case where the transferor is a taxable person, the transferee is already, or immediately becomes as a result of the transfer, a taxable person or a person defined as such in section 3(1) of the Manx Act;
(b) their supply to a person to whom he transfers part of his business as a going concern where—
(i) that part is capable of separate operation,
(ii) the assets are to be used by the transferee in carrying on the same kind of business, whether or not as part of any existing business, as that carried on by the transferor in relation to that part, and
(iii) in a case where the transferor is a taxable person, the transferee is already, or immediately becomes as a result of the transfer, a taxable person or a person defined as such in section 3(1) of the Manx Act.
(2) A supply of assets shall not be treated as neither a supply of goods nor a supply of services by virtue of paragraph (1) above to the extent that it consists of—
(a) a grant which would, but for an election which the transferor has made, fall within item 1 of Group 1 of Schedule 9 to the Act; or
(b) a grant of a fee simple which falls within paragraph (a) of item 1 of Group 1 of Schedule 9 to the Act,
unless the conditions contained in paragraph (2A) below are satisfied.
(2A) The conditions referred to in paragraph (2) above are that the transferee has, no later than the relevant date—
(a) exercised an option in relation to the land which has effect on the relevant date and has given any written notification of the option required by paragraph 20 of Schedule 10 to the Act; and
(b) notified the transferor that paragraph (2B) below does not apply to him.
(2B) This paragraph applies to a transferee where—
(a) the supply of the asset that is to be transferred to him would become, in relation to him, a capital item as described in regulation 113 of the Value Added Tax Regulations 1995 if the supply of that asset to him—
(i) were to be treated as neither a supply of goods nor a supply of services; or
(ii) were not so treated; and
(b) his supplies of that asset will, or would fall, to be exempt supplies by virtue of paragraph 12 of Schedule 10 to the Act.
(3) In paragraph (2) of this article—
“option” means an option to tax any land having effect under Part 1 of Schedule 10 to the Act;
“relevant date” means the date upon which the grant would have been treated as having been made or, if there is more than one such date, the earliest of them;
“transferor” and “transferee” include a relevant associate of either respectively as defined in paragraph 3 of Schedule 10 to the Act.
Section 49 VAT Act 1994
(1) Where a business, or part of a business, carried on by a taxable person is transferred to another person as a going concern, then -
(a) for the purpose of determining whether the transferee is liable to be registered under this Act he shall be treated as having carried on the business before as well as after the transfer and supplies by the transferor shall be treated accordingly; and
(b) [omitted by FA 2007, s.100(2)(c) and repealed by FA 2007, s.114 and sch. 27, Pt.6(2).]
(2) Without prejudice to subsection (1) above, the Commissioners may by regulations make provision for securing continuity in the application of this Act in cases where a business carried on by a taxable person is transferred to another person as a going concern and the transferee is registered under this Act in substitution for the transferor.
(2A) Regulations under subsection (2) above may in particular provide for the duties under this Act of the transferor to preserve records relating to the business or part of the business for any period after the transfer to become duties of the transferee unless the Commissioners, at the request of the transferor, otherwise direct.
(3) Regulations under subsection (2) above may in particular provide -
(a) for liabilities and duties under this Act (excluding sections 59 to 70) of the transferor (other than the duties mentioned in subsection 2A above) to become, to such an extent as any be provided by the regulations, liabilities and duties of the transferee; and
(b) for any right of either of them to repayment or credit in respect of VAT to be satisfied by making a repayment or allowing a credit to the other;
but no such provision as is mentioned in paragraph (a) or (b) of this subsection shall have effect in relation to any transferor and transferee unless an application in that behalf has been made by them under the regulations.
(4) Subsection (5) below applies where-
(a) a business, or part of a business, carried on by a taxable person is transferred to another person as a going concern, and
(b) the transferor continues to be required under this Act to preserve for any period after the transfer of any records relating to the business, or part of a business.
(5) So far is as is necessary for the purpose of complying with the transferee’s duties under this Act, the transferee (“E”) –
(a) to give to E, within such time and in such form as E may reasonably require, such information contained in the records as E may reasonably specify
(b) to give to E, within such time and in such form as E may reasonably require, such copies of documents forming part of the records as E may reasonably specify, and
(c) to make the records available for E’s inspection at such time and place as E may reasonably require (and permit E to take copies of, or make extracts from, them).
(6) Where a business, or part of a business, carried on by a taxable person is transferred to another person as a going concern, the Commissioners may disclose to the transferee any information relating to the business when it was carried on by the transferor for the purposes of enabling the transferee to comply with the transferee’s duties under this Act.