VAT when business transferred as a going concern

The transfer of a business as a going concern (TOGC) rules concern the possible VAT liability resulting from the sale of a business. Normally the sale of the assets of a VAT registered or VAT registerable business will be subject to VAT at the appropriate rate.

However, where the sale of a business includes specific assets and meets certain conditions the sale will be categorised as a TOGC. A TOGC is defined as 'neither a supply of goods nor a supply of services' and is therefore outside the scope of VAT and no VAT is chargeable.

Planning note

HMRC lists the following conditions necessary for a TOGC to apply:

• The assets must be sold as part of a 'business' as a 'going concern'. In essence, the business must be operating as such and not just an 'inert aggregation of assets'.
• The purchaser intends to use the assets to carry on the same kind of business as the seller.
• Where the seller is a taxable person, the purchaser must be a taxable person already or become one as the result of the transfer.
• Where only part of a business is sold it must be capable of separate operation.
• There must not be a series of immediately consecutive transfers.
• There are further conditions in relation to transactions involving land.

Please call for advice if you are contemplating the transfer or sale of your business. The VAT at risk can be considerable and liability needs to be assessed before you dispose of the relevant assets.

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