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HMRC internal manual

VAT Transfer of a going concern

HM Revenue & Customs
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Article 5 VAT (Special Provisions) Order 1995: is what has been transferred a business activity?

You should always consider whether what has been transferred is a business activity in theVAT sense. If it is not a business, there can not be the transfer of a business (as a going concern), so the TOGC provisions do not apply. Examples of non-business activities are those carried on by regulatory bodies in consequence of their statutory obligations. e.g.a local council. An example of this arose in the Peddars Way Housing Association case.

The Peddars Way Housing Association (LON/93/2649A) case essentially concerned council housing that it had acquired from the local authority but in order to win their case they needed to establish that a TOGC had taken place the effect of which was to put them in the same position as the local authority. Their argument was based on an interpretation of Article 5.8 of the EC 6th Directive. They lost on this point alone, but the tribunal held in any case that although both rent homes to tenants, the council and the housing association do not carry out the same kind of business within the same constraints. The housing association for example, had no statutory duty to house the homeless nor are its funds “ringfenced” to the same extent.

This case also shows that in order for a TOGC for the purposes of theVAT (Special Provisions) Order 1995 to take place, what is being transferred must be abusiness in the VAT sense. The local authority was not “in business” but merelycarrying out their statutory obligations to provide housing. The transfer of thisobligation to a third party did not make it the transfer of a business and could not be aTOGC for VAT purposes.

The term “business” is defined in s94 VAT Act 1994 as including “any trade, profession or vocation”. The Departmental view is expressed in Notice 700 “The VAT Guide” Section 4.6 which says:

“In VAT terms, business means any continuing activity which is mainly concerned with making supplies to other persons for a consideration. The activity must have a degree of frequency and scale and be continued over a period of time. Isolated transactions are not normally business for VAT purposes”

The term “business” should be interpreted consistently with the Principal VAT Directive term of “economic activity” (Article 9):

“Any activity of producers, traders and persons supplying services, including mining and agricultural activities and activities of the professions, shall be regarded as ‘economic activity’. The exploitation of tangible or intangible property for the purposes of obtaining income there                            from on a continuing basisshall also be considered an economic activity.”

Further guidance on the meaning of business can be found in guidance V1-6“Business/non- business”.