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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: What is a going concern?: cessation of trading before sale

If a business ceases to trade before it is sold, there may be a question as to whether it is a going concern. As with a break of trading after the purchase, the kind of business involved is very important. In Thruxton Parachute Club (LON/84/331) the sporadic nature of parachuting was seen as being an important consideration in deciding that the former business had not completely died and was therefore capable of being transferred as a going concern. If a seasonal business has been closed during what is normally the closed season, it may still be a going concern. For example, they maybe advertising for customers, accepting bookings for when they reopen etc.

In contrast, the business may cease only immediately before the sale, but because the business has effectively disappeared, the transaction may not be a TOGC.

Morland & Co plc (LON/91/1653X) claimed input tax on the acquisition of 98 freehold public houses. However the route by which they acquired them was rather complex. The pubs were owned by a property investment company who let them to Courage Group Ltd. Courage in turn sub-let them to individual tenants. The pubs were sold by the property investment company to a property company within the Morland VAT group who let them to Morland who then sublet them to the tenants. The tribunal found that the seller’s business was to let the pubs to Courage and on transfer of the pubs the leases ceased to exist. Thus Morland did not actually operate the same business as the seller as the business no longer existed in order to be transferred. The appeal therefore succeeded.