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HMRC internal manual

VAT Transfer of a going concern

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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?: the key approach - weighing the factors

In trying to answer the question “has a business been transferred as a going concern?” case law has established that the key approach is to look at the overall effect of what has happened. There are two employment law cases which, although not VAT cases, form the standard approach used by tribunals. When seeking to define a TOGC. One is a UK case (Kenmir v Frizzell, QB (1968) 1 WLR 329), the other an ECJ case (J.M.A Spijkers v Gebroeders Benedik Abbatoir C.V., C-24/85).

The judge’s comments in Kenmir are set out below. A summary of the Spijkers case can be viewed on the tribunal record. Both these cases stress the need to take all factors into account. The judges in both these cases set out a listing of the important factors to be considered in arriving at a decision. This should not be taken as an exhaustive list. Neither the presence nor absence of a particular factor is decisive in itself. Individual factors should not be looked at independently but taken together as a whole. When arriving at a decision you need to look at all the factors and weigh up which side is the most persuasive.

Kenmir v Frizzell (QB (1968) 1 WLR 329)

In deciding whether a transaction amounted to the transfer of abusiness, regard must be had to its substance rather than its form, and consideration must be given to the whole of the circumstances, weighting the factors which point in one direction against those which point in another. In the end, the vital consideration is whether the effect of the transaction was to put the transferee in possession of a going concern, the activities of which he could carry on without interruption. Many factors may be relevant to this decision though few will be conclusive in themselves.

Thus if the new employer carries on a business in the same manner as before, this will point towards the existence of a transfer, but the converse is not necessarily true, because a transfer may be complete even though the transferee does not choose to avail himself of all the rights which he acquires thereunder. Similarly an express assignment of goodwill is strong evidence of a transfer of the business, but the absence of such an assignment is not conclusive if the transferor has effectively deprived himself of the power to complete. The absence of an assignment of premises, stock-in-trade or outstanding contracts will likewise not be conclusive, if the particular circumstances of the transferee nevertheless enables him to carry on substantially the same business as before.”

The various aspects mentioned in these two cases are examined below.

The final decision you make may often be subjective but you, in possession of all the relevant facts and with local knowledge, are in the best position to make that decision.This guidance can only provide you pointers and indicators as to whether a transaction is a TOGC.