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HMRC internal manual

VAT Transfer of a going concern

Article 5 VAT (Special Provisions) Order 1995: Same kind of business: Artificial 'TOGC' arrangements

You should be aware of contrived transactions designed to artificially create the illusion of a continuing business. Such arrangements are not be considered to be transfers of a going concern.

In Royal College of Paediatrics and Child Health (and 1 other) [2015] UKUT 0038 (TCC) a property company (Coleridge) entered into an arrangement to sell a building to the Royal College of Paediatrics (Royal College). The scheme employed was found to constitute a TOGC at First Tier Tribunal but was overturned at the Upper Tier.

The Royal College occupied premises and let space to two separate organisations B and C that had related aims.

Coleridge was a property development company with a business of property trading and letting. It purchased a building (the Property) and opted to tax it. After a refurbishment, the Property was put on the market to let.

The Royal College needed new premises and discovered that Coleridge would be prepared to sell the Property rather than let it. The organisations B and C wished to move with the Royal College and remain its tenants.

Seeking to minimise its exposure to VAT, the Royal College was advised that it would be advantageous if the transaction to acquire the property could be treated as a TOGC.

The Royal College opted to tax the property and shortly thereafter Coleridge and organisation B entered into an agreement for a lease for a single room for a premium of £1,000. The lease was conditional on Coleridge exchanging an unconditional contract for sale of the Property with the Royal College within a year.

Later on the same day Coleridge and the Royal College exchanged contracts for the sale of the property with the benefit of the lease with organisation B. The transaction was treated as a TOGC.

Shortly after the sale, the Royal College granted Organisations B and C fifteen year leases on a single room within the Property.

Overturning the First Tier decision that a TOGC had occurred, Justice Birrs ruled that the putative tenant (organisation B) was already a tenant of the purchaser (Royal College) and plainly envisaged remaining one. It wished to occupy the Property, but only because of its pre-existing relationship with the Royal College. It was the Royal College that introduced B to Coleridge.

The agreement for lease and sale of the freehold of the property was part and parcel of this arrangement. From the viewpoint of economic activity, in no sense was B transferred as a tenant or putative tenant to the Royal College. While it was true that the Royal College subsequently granted a lease to B after acquiring the Property, it was “unreal” to connect this to the agreement between Coleridge and B. The “critical feature” of the case was the relationship between B and the Royal College.

“The fact that the seller had a business letting a property before a sale and the buyer buys the property with an intention of letting the property too would make no difference. If the sale of the Property had been simply a transfer of the freehold and nothing else then I cannot see how it could possibly be a transfer of a going concern. Something else had to be transferred as well as the property and that further element has to have the appropriate characteristics.

In a normal case of the transfer of a freehold, no doubt it is enough for the extra element to be a transfer of a lease to a tenant or even an agreement with a putative tenant to do so. As long as that lease which is transferred (or the agreement) can truly be said to have been part of the seller’s business then the requirements of the law will be satisfied…

… However here the agreement for a lease was not part of the seller’s business at all. The putative tenants were never part of Coleridge’s business, they came from the purchaser. The agreement arose directly from and was simply part of the sale transaction. No part of seller’s business was transferred to the buyer. For this reason the transfer was not a transfer of a going concern.”

It is worth noting that the scheme failed for the reasons set out in the paragraph above, that the lease was not part of the seller’s business. It was not because of the arrangement between the tenant and the buyer.


Royal College of Paediatricians is also a case that illustrates that there is no minimum occupation limit when it comes to determining whether there is a going concern.  Although see also VTOGC7150.