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HMRC internal manual

VAT Transfer of a going concern

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HM Revenue & Customs
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Article 5 VAT (Special Provisions) Order 1995: supplies of assets of his business

Article 5 refers to “supplies by a person of assets of his business”. It is important, therefore, to focus on the assets themselves and their supply, not just the business activity. If there is no supply of the seller’s assets, there is nothing to which the TOGC provisions can apply, even if a business activity is transferred.

For example, if all the shares in a limited company are sold, it may be said that the business has been transferred to a new owner. However, the assets of that business have not been supplied, so the TOGC provisions do not apply. Another situation where there maybe the transfer of a business without a supply of assets is where the person carrying on the business does not own the assets used. In some restaurants the physical assets are all owned by one person but the business carried on by another, often a relative. If there is a change in the person carrying on the business, that is transfer of the business. The only asset that business might have, and so be able to supply, is goodwill. If no charge is made for the goodwill, there is no supply for VAT purposes, and so nothing to which the TOGC provisions could apply.

Alternatively, if the seller does not supply to the purchaser the asset he used, the  provisions do not apply. Thus, if the seller owned the freehold of the business premises and granted the purchaser a lease, the payment for the lease is consideration for a supply even if the TOGC provisions apply to all other assets transferred. This is because the purchaser is using a different asset from that used by the seller even if the lease is a 999 year lease. This point arises most often in respect of property (see VTOGC6000 for more information), but applies in principle to all assets.