Ensure that a business is continued post-sale to treat its disposal as a TOGC for VAT purposes

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Ensure that a business is continued post-sale to treat its disposal as a TOGC for VAT purposes

Ensure that a business is continued post-sale to treat its disposal as a TOGC for VAT purposes

Tue 15 Oct 2019

A transaction that is treated as the transfer of a going concern (TOGC) is outside the scope of VAT, so there is no VAT on the consideration for the transaction. The transfer of property that consists of a letting business can qualify as a TOGC.

The recent case of General Distribution Services Ltd (GDSL) has highlighted that the buyer must intend to operate the same kind of business as an independent economic activity at an operational level in order to qualify as a TOGC. The difficulty for GDSL was that it had contracted to on-sell the leased property before it had acquired it (a back to back sale and purchase), so the FTT concluded GDSL never intended to carry on the economic activity itself.

This was notwithstanding the decision in the case of Intelligent Management Systems, where the acquired business became part of a larger business providing services intragroup instead of to directly external customers.

For a further discussion of the VAT issues on the sale of a business, please get in touch with a member of the Mazars indirect tax team.

Conditions required for a TOGC

The conditions for a TOGC as set out in VAT Notice 700/9 are as follows.

  • The assets, such as stock-in-trade, machinery, goodwill, premises, and fixtures and fittings, must be sold as part of the TOGC.
  • The buyer must intend to use the assets in carrying on the same kind of business as the seller – this does not need to be identical to that of the seller, but the buyer must be in possession of a business rather than simply a set of assets. 
  • Where the seller is a taxable person, the buyer must be a taxable person already or become one as the result of the transfer. 
  • The buyer must notify HMRC that it has opted to tax any standard-rated land or buildings provided by the relevant date, and must notify the seller that its option has not been disapplied by the same date. 
  • Where only part of the business is sold, it must be capable of operating separately. 
  • There must not be a series of immediately consecutive transfers of the business.
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