Introduction: General approach
It is important to be aware that the TOGC rules are mandatory and not optional. Businesses cannot choose to ‘opt out’. This was confirmed in the tribunal case:
Advanced Business Technology (LON/83/195)
The purchaser paid VAT to the seller on the purchase price. The output tax was not declared. Both parties agreed that a TOGC had taken place but the seller did not repay the VAT charged. The purchaser used the VAT tribunal to force him to do so. Although not happy that a tribunal was being used in this way, it confirmed that once a TOGC had been agreed and the conditions in the law met, both parties were bound by it and could not opt out.
If all the conditions for TOGC are met the TOGC must apply and VAT must not be chargedor accounted for on assets transferred (except, in certain circumstances, on the premises i.e. land and/or property used in the business. See VTOGC6100)
One problem with TOGC is that it is an exception to the general principle of the taxthat VAT is due on supplies of goods and services, and many businesses are often unawareof the special rules and the fact that they are mandatory. This is compounded by the fact that often the purchaser of a business is new to VAT and as such it may never haveoccurred to him that VAT should not be charged. It may only be when he has his firstassurance visit and the input tax on the purchase is disallowed that he becomes aware ofthe TOGC provisions. By the time this happens the seller may be long gone and it will be difficult for the purchaser to chase him for the “tax” incorrectly charged.Nonetheless, where “VAT” has been wrongly charged, strictly speaking it is a matter to be resolved between the seller and the purchaser: it is not a matter for HMRC. However, exceptionally, in certain circumstances we may not seek to recover the“input tax wrongly claimed by the purchaser”, see VTOGC4200.