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HMRC internal manual

VAT Transfer of a going concern

Article 5 VAT (Special Provisions) Order 1995: Has there been the transfer of a business or just a sale of assets?: general

The TOGC provisions apply to the supply of assets of a business, where the business is transferred as a going concern. It is required to distinguish between sales of assets where the business is transferred and sales where the business (or part of the business) is not transferred.

This distinction was expressed in an Inland Revenue case Baytrust Holdings Ltd v Inland Revenue Commissioners; Thos Firth and John Brown (Investments) Ltd v Inland Revenue Commissioners - [1971] 3 All ER 76) which has been quoted at VAT tribunal:

“A greengrocer’s business is no doubt to sell fruit, but the pound of apples which you buy can hardly be described as a purchase of part of the greengrocer’s business.”

There is no fixed dividing line between the two. It is a question of looking at the overall effect of the transaction to see whether the business (or part of the business) has been transferred.

Our approach is to look at the business being carried on using the asset concerned. If there are tenants currently paying rent or contractually obliged to pay rent in the future, including those currently occupying in a rent free period, the property is being used in a property rental business. When the property is sold, with the benefit of the rental income, the business is transferred.

Hallborough Properties (MAN/92/877), provides a useful context on this. In this case a company that mainly acted as a property developer was found to be a property letting business in relation to the specific sale of a tenanted property.

Unless sold as part of a portfolio that includes tenanted properties, should a property be vacant with no rental income received, and there is no-one obliged to pay rent in the future, there is no going concern to be transferred, even if a tenant is actively being sought. In this situation therefore the sale of the building is simply the sale of an asset and will follow the normal supply and liability rules.


More detailed guidance on property transactions is in VTOGC6000 and VTOGC7000

On the wider question of whether a business has been transferred, the Advocate General made some helpful observations in the case of Zita Modes SARL (Case C-497/01):

“Where a totality of assets is concerned, there is little difficulty. The transfer in question is that of a business as a whole which as the Commission has pointed out will comprise a number of different elements. For example, the French term fonds de commerce, used on the invoice in the case in the main proceedings, has been defined in legal dictionaries as including elements both corporeal (such as plant, equipment and stock-in-trade) and incorporeal (such as the tenant’s interest in a lease, the trade name or sign, patents, trademarks and goodwill). One might add trade secrets, business records, customer lists, the benefit of existing contracts and so forth.

The cement which binds such elements together is the fact that they combine to allow the pursuit of a specific economic activity, or group of activities, while each in isolation would be insufficient for that purpose. Separately, they are the building blocks of a business; together, they amount to a business.

It follows in my view that the concept of part of a totality of assets relates not to one or more individual elements from that list but to a sufficient combination thereof to allow the pursuit of an economic activity, even if that activity forms only part of a larger business from which it has been detached.”