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HMRC internal manual

VAT Transfer of a going concern

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HM Revenue & Customs
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Common areas of difficulty: input tax

Input tax in this paragraph refers to input tax incurred on items such as legal fees, advice etc. by the purchaser or seller in relation to a TOGC. It does not refer to tax charged by the seller on the assets transferred which is discussed in VTOGC4200.

Since 1 June 1996, input tax incurred by the purchaser can be recovered in accordance with the use to which the purchased assets will be put. Therefore if the assets are used exclusively to make taxable supplies, the VAT incurred on the cost of acquiring them should be attributed to those taxable supplies and can be recovered in full. Similarly, if the assets of the purchased business are to be used exclusively to make exempt supplies, none of the input tax on the cost of acquiring them can be recovered. If the assets are to be used in making both taxable and exempt supplies, any input tax incurred is non-attributable and must be apportioned in accordance with the purchaser’s agreed VAT partial exemption method. Prior to 1 June 1996, the purchaser’s input tax was regarded as a general overhead of the business and recoverable according to the business’s partial exemption method.

In the seller’s case, the sale of the business is not a supply and the input tax incurred on the costs of selling it can not be attributed to any supply by him. These costs are therefore treated as a general business expense and the input tax is residual input tax that will have to be apportioned in accordance with the seller’s partial exemption method. See also guidance V1- 15: “Partial exemption”.