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HMRC internal manual

VAT Transfer of a going concern

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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?: transfer of contracts and work in progress

If a purchaser takes over contracts with suppliers, this is a good indication that he is to carry on the business of the seller. Similarly, if he buys work in progress or takes over obligations under contracts with customers, this suggests a TOGC.

However, not every case where the benefit of contracts is transferred will amount to the transfer of a business. A large company with more work than it can deal with may arrange with its customer, as a temporary measure, for a small job to be carried out by another person. Clearly no part of the business has really been transferred and there will be no TOGC.

It is not always possible however to transfer or assign contracts - new ones normally have to be arranged, often by way of novation. This is a tripartite agreement that requires all three parties to consent. It releases the original party to the contract from his obligations and establishes a new one between the other two. If contracts are assigned (not novated) the original supplier is still contractually obliged to fulfil the contract. In these circumstances, the purchaser is not taking on the business obligations of the seller.