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HMRC internal manual

VAT Transfer of a going concern

HM Revenue & Customs
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Common areas of difficulty: tax incorrectly charged

In many cases the first evidence that we will see of assets being transferred is an invoice issued to the purchaser by the seller showing VAT. This output tax may or may not have been declared and paid by the seller. Where you are satisfied that the transaction inquestion is covered by Article 5 of the VAT (Special Provisions) Order and the supply is not a supply for VAT purposes, no tax is chargeable. Any amount said to be “VAT” is not VAT.

Similarly, the purchaser has no right to deduct the “VAT” as input tax even if he paid the sum to the seller in good faith. In both Shire Equip Ltd(MAN/83/52) and Jaymix (LON/83/265) it was held that the fact that an invoice with VAT shown was issued was irrelevant and the invoices could be ignored when the actual effect of the transfer was of a business as a going concern.

Officers should use their discretion to decide whether an assessment is appropriate.They should consider the circumstances of each individual case. Detailed guidance on this is given in V1-35: Assessments and Error correction. However, where you are wholly satisfied that the amount of “VAT” on the invoice has been both declared and paid to HMRC by the seller, you may allow the purchaser to recover it as if it were input tax. This is allowed under care and management of the Revenue, to avoid unnecessary bureaucracy where no tax is at risk. Businesses should be told in writing that, although the Department maintains that the “tax” is not actually input tax, in the circumstances no action will be taken to recover it from them. Where returns have not been rendered by the seller or it is not clear that the “tax” has been paid, this treatment is not appropriate.

This principle was confirmed in the tribunal case Kuldip Kaur Jalf (MAN/90/260). He purchased the lease of premises, fixtures and fittings and goodwill of a video shop for £18,000. The seller’s solicitors wrote in a letter that the £18,000 was inclusive of tax. Mr Jalf recovered the VAT element as input tax.The tribunal chairman agreed that where there was clearly a TOGC then the Commissioners could exercise their discretion as to whether to disallow the tax claimed. In this case, the seller had not issued an invoice. Correspondence between solicitors had merely suggested that the £18,000 included VAT. In these circumstances we would not be in a position to recover the “output” tax from the seller and an assessment to recover the tax claimed was appropriate.

Businesses and tax advisers have argued that where a “tax invoice” has been issued we should pursue the seller for the tax rather than penalise a purchaser who paid the “tax” in good faith. This is essentially a private commercial dispute between the parties over the price paid in which the Commissioners cannot interfere. Whatever monies the seller receives from the purchaser, they do not include VAT even if it is described as such. Businesses should be discouraged from bringing to tribunal cases where it is clear a TOGC has taken place purely in order to obtain a more authoritative ruling to be able to make a claim against the seller. Tribunals have found this to be an abuse of a tribunal’s time and have indicated that they will award costs against the appellant - Advanced Business Technology (LON/83/195).