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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: 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. Therefore, you need 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 (Baytrustv I R Commissioners) 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.

Some businesses and tax advisers have tried to argue that the sale of properties by a property investment company are akin to the sale of an apple in the above example. They argue that it is merely the sale of “stock”. 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) which is on the tribunal record, provides a useful precedent on this. If, however, no rental income is being 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