What is the transfer of a business as a going concern for VAT purposes? Be Aware, Getting it Wrong Can be Costly!!

The transfer of a business as a going concern for VAT usually involves high ticket items. To get the VAT liability wrong can lead to severe penalties/interest and it is in a company’s best interest to get these transactions right first time, rather than trying to unravel a situation post transaction. It is always worthwhile checking with your Hawsons VAT contact before the transaction takes place.

Normally the sale of the assets of a VAT registered or VAT registrable business will be subject to VAT at the appropriate rate. A transfer of a business as a going concern (TOGC) however is the sale of a business including assets which must be treated as a matter of law, as ‘neither a supply of goods nor a supply of services’ by virtue of meeting certain conditions.

Where the sale meets the conditions the supply is outside the scope of VAT and therefore VAT is not chargeable.

HMRC sees the conditions as being:

  • The assets must be sold as part of a ‘business’ as a ‘going concern’*
  • 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/Buildings. See link below – Section 2.3:

 

https://www.gov.uk/guidance/transfer-a-business-as-a-going-concern-and-vat-notice-7009#how-to-apply-the-togc-rules

Free initial meeting

Tony Nickson

VAT Consultant, Sheffield

01604 645 600

Related content

New VAT Penalties coming from 1 January 2023

What are the new VAT penalties? From 1st January 2023 a new penalty-based points system will be introduced for all VAT returns that are submitted late or the payment is late. This new system will replace the current default Surcharge. Nil or repayment returns that are...

Tax Rates and Allowances 2022/23

Introduction We have summarised the key rates and allowances which are fundamental to our business and personal lives. We are sure that you will find them a useful point of reference and have set out below a few examples of how they can be used. Personal tax rates As...

What is the Postponed VAT Accounting system?

The Postponed VAT Accounting (PIVA) system for imported goods was introduced on 1 January 2021 and allows VAT registered businesses to declare and, subject to the normal rules, reclaim import VAT on the same VAT return. This avoids VAT being paid to HMRC on import and...