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HMRC internal manual

VAT Transfer of a going concern

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HM Revenue & Customs
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Introduction: UK Law

Section 5(3)(c) of the VAT Act 1994 gives powers to describe in a Treasury Order transactions to be treated as neither a supply of goods nor a supply of services. Article5 of the VAT (Special Provisions) Order 1995 (SI 1995/1268) contains the provisions relating to the sale of business assets where the business is transferred as a going concern. This is reproduced in full at VTOGC8100.

Subject to certain conditions, the supply of all or some of the assets of a business, or part of a business, by one person to another is neither a supply of goods nor a supply of services. These conditions are that:

  • the assets must be supplied as part of the transfer of a ‘business’ as a ‘going concern’;
  • the assets are to be used by the purchaser 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 purchaser must be a taxable person already or become one as a result of the transfer;
  • in respect of land which would be standard rated if it were supplied, the purchaser must notify HMRC of an option to tax the land by the relevant date; and must notify the seller that his option has not been disapplied by the same date;
  • where only part of the ‘business’ is being sold, it must be capable of operating separately; and
  • there must not be a series of immediately consecutive transfers of ‘business’
     

Each of these conditions is discussed in VTOGC3000 to VTOGC3900 except the rules for land which are addressed in VTOGC6000.

The VAT (Special Provisions) Order 1995 is the main legislation concerning TOGC, but there are several other legal provisions relating to TOGC. These are:

  • Section 44 VAT Act 1994;
  • Section 49 VAT Act 1994 and Regulation 6 of the VAT Regulations 1995;
  • Section 94 (6) VAT Act 1994; and
  • Paragraph 8 (1) Sch 4 VAT Act 1994.
     

Section 44 VAT Act 1994 is reproduced at VTOGC8300 and concerns TOGCs into partly exempt VAT groups. It is discussed at VTOGC5400.

Section 49 VAT Act 1994 (see VTOGC8200) and Regulation 6 of the VAT Regulations 1995 concern registration, transfer of records and transfer of VAT registration number. Guidance on registration and transfer of records when a business is transferred as a going concern and the transfer of VAT registration numbers is contain edin guidance V1-28 Registration.

Section 94 (6) VAT Act 1994 states that:

“The disposition of a business, or part of a business, as a going concern, or of the assets or liabilities of the business, or part of the business (whether or not in connection with its reorganisation or winding up) is a supply made inthe course or furtherance of the business.”

Thus if businesses seek to argue that the disposal of their business and business assets is not what they are in business to do and therefore VAT should not be chargeableon their supply, the argument should be rejected.

Under Paragraph 8 Sch 4 VAT Act 1994, where a person ceases to be a taxable person, through either ceasing to make taxable supplies or continuing to trade but under the registration limit and deregistering, the law deems that any goods forming part of the assets of the business shall be considered as supplied by him immediately before he ceases to be a taxable person. This deeming provision is not applied if the business is transferred as a going concern under the TOGC provisions.

Paragraph 8(1) Sch 4 VAT Act 1994

“Where a person ceases to be a taxable person, any goods then forming part of the assets of a business carried on by him shall be deemed to be suppliedby him in the course or furtherance of his business immediately before he ceases to be a taxable person,

unless -

(a) the business is transferred as a going concern to anotherperson; or …”

There is more guidance on goods on hand when ceasing to be a taxable person in V1-3“Supply and consideration”.