I was recently asked for the latest position on the Application of Transfer of Going Concern for property businesses. Therefore, I decided to write this article to provide a simple to understand quid in this complex area of tax.
The transfer of a business (or part of a business) as a going concern is potentially a non-supply and, therefore, disregarded for VAT purposes. In a property context this can be relevant to both occupiers and investors.
Where TOGC treatment applies no VAT needs to be charged on the value of the assets. This can be important to the parties as it prevent the transferee suffering a cash flow disadvantage on the payment of the VAT which would otherwise be chargeable. TOGC treatment can also provide a real saving in a property transaction because the consideration is VAT-free, so reducing the SDLT charge (if it is not a TOGC and VAT is due, then SDLT will be due on the VAT element).
The VAT-free treatment as a TOGC is mandatory where it applies. If VAT is charged in error, the purchaser has no legal right to recover it from HMRC, and should look to the vendor to reimburse it. HMRC’s attitude will, however, largely depend on whether or not the vendor has accounted to them for the VAT.
The general conditions for TOGC treatment
Article 5(1) Value Added Tax (Special Provisions) Order 19953
(1) The transferred assets must be business assets transferred as part of a going concern.
(2) The transferee must use the assets acquired in carrying on the same kind of business as that carried on by the transfero
(3) The transferee must be a taxable person or as a result of the TOGC become a taxable person.
(4) Where only part of a business is transferred, that part must be capable of separate operation.