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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: Same kind of business: general

Paragraphs (1)(a)(i) and (b)(i) of Article 5 of the VAT (Special Provisions) Order 1995 require the assets being transferred to be used by the purchaser in carrying on the same kind of business as that carried on by the seller. This can be a difficult point to decide and as it is often a matter of opinion and degree. This requirement has been criticised by businesses and advisers in that it requires the seller to look into the intentions of the purchaser in order that he may decide whether to charge tax or not. However, VAT is a self assessed tax and it is the responsibility of the seller to check with the purchaser that he intends to carry on the same kind of business before he decides that there is no supply for VAT purposes.

The words “carrying on same kind of business” in UK Law need to be interpreted in line with the ECJs decision in Zita Modes: that the purchaser must intend to continue the business. In applying the Zita Modes test to land and property transactions it is necessary first to identify precisely what assets are being transferred. Because all the seller’s interests in a property are assets, a TOGC can take place only where the asset transferred by the seller is the same asset that the seller used to carry on the business before the sale.

In most cases it is quite apparent. For example a pub will continue to be run as a pub even if a different clientele is aimed for and different beer sold, G Draper(Marlow) Ltd (LON/85/439).

Similarly in Housand Tahmassebi t/a Sale Pepe (MAN/94/197) a change from an Indian restaurant to an Italian one was found to be the transfer of the same type of business. The tribunal chairman commented: “… the vendors transferred to the appellant a restaurant which was a going concern, which however he elected immediately to close for a period of a number of weeks so that he could make all the necessary preparations to reopen in a radically different form. This does not in my opinion affect the fact that what was transferred to him was a restaurant business which enabled him to trade as such, in a transformed guise, once the preparations to reopen had been made.”

You must also have regard to what the purchaser will actually be doing with the business he is buying.

ICB Ltd (BEL/84/8) were road builders who bought a number of quarries that had been selling them stone for their business, It was made clear throughout all the negotiations that the reason for ICB’s purchase was to acquire an in-house supply of stone. It had never been ICB’s intention to carry on the quarrying business or sell the stone outside the group. It was held that ICB were carrying on a different type of business and thus there was no TOGC.