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HMRC internal manual

VAT Transfer of a going concern

Article 5 VAT (Special Provisions) Order 1995: Taxable person

If the seller of a business or part of a business is a taxable person, for the transaction to be treated as a TOGC, the purchaser must also be, or immediately become as a result of the transfer, a taxable person.

 A taxable person is someone who is, or is required to be, registered for VAT. If the purchaser is not a taxable person, the supply of the assets is a supply for VAT purposes.

If the seller is not a taxable person, the supply of the assets can still be treated as a TOGC regardless of whether the purchaser is a taxable person or not, provided that all the other conditions for a TOGC are met. Problems can arise where the seller is registered but sells part of his business which is wholly exempt. This is discussed in VTOGC4300.

If the purchaser is already registered, the “taxable person” condition is clearly met. However, in a TOGC, liability to register is determined by s49 VAT Act 1994 (see VTOGC1100). These provisions mean that the turnover of the seller must be examined to decide whether the purchaser must register. Where the whole of a business is transferred, this is usually straightforward. But if the purchaser intends to reduce the level of trading e.g. by opening on fewer days or shorter hours, this would have to be considered when judging if the purchaser is a taxable person.

Where only part of the business is being transferred, it is the turnover of this part that determines whether the purchaser must be registered.

Where the buyer of a business, or part of a business, is not already a taxable person then for the purposes of determining the value of their taxable supplies they must treat as their own the taxable supplies made by the seller prior to the purchase.

This is known as the ‘backward look’ and has the effect that VAT registration cannot be avoided by transferring a business each time its taxable turnover approaches the VAT registration threshold. It also provides a degree of certainty for the parties involved in the transfer with respect to taxable person status at the time of the transaction.

Non-Established Persons

A non-established person is any person who is not normally resident in the UK, who does not have a UK establishment and, in the case of a company, is not incorporated there.

There are different rules for determining whether a non-established person is liable to register for VAT than there are for a person established in the UK. These are set out in Notice 700/1 Should I be registered for VAT?

The UK has a compulsory VAT registration threshold for persons established in the UK.

There is no VAT registration threshold for non-established persons, who must register for VAT in the UK either immediately they make any taxable supply there or if they expect to do so in the following 30 days. As there is no registration threshold there is no need for a ‘backward look’.

Example: It may be the intention of a non-established and non-taxable person to immediately suspend the newly acquired business for a period of six weeks while the business premises are refitted. There being no taxable supplies made or expected to be made within a thirty day period following the transfer, the buyer would not be liable to be a taxable person under the terms of the non-established person legislation and the transaction cannot be a TOGC.

Where it is known that a non-established buyer will not be making taxable supplies at the point of transfer and does not intend to do so within the 30 day period, the non-established person has the option to voluntarily register for VAT. If the seller is a taxable person he must do so before the transaction for the TOGC condition to be met. It is HMRC’s opinion that a voluntary registration must be in place at the time of the transaction for the TOGC rules to apply.

However, although there is no backward look for the non-established person, in cases where a supply by the seller spans the date of the transfer HMRC accept that these become supplies made by the buyer immediately following the transfer. So, for example, where a tenancy agreement has effect at the time of the transfer the non-established person will have made a supply which, assuming an option to tax is in place, will be taxable and liability to register for VAT follows. In these circumstances it would not matter that a consideration had not at that point been received and was not perhaps expected within 30 days of the transfer. When the consideration becomes payable and the fact that it may be discounted by reference to a rent holiday has no impact.


Further guidance on registration and TOGC may be found in guidance at VATREG29000