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Introduction

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The sale of assets of a business or the sale of a business would normally attract 20% VAT.

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However under HMRC rules, if you sell assets of a business as a going concern, then provided certain conditions are met, no VAT is applicable on the sale.

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This is known as Transferring a Business as a Going Concern (TOGC) and the following conditions must be met before the transfer can be treated as a TOGC.

 

• 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

• In respect of land or buildings which would be standard-rated if it were supplied, the buyer must notify HMRC that they have opted to tax the land by the relevant date, and must notify the seller that their 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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Activities that are not considered a TOGC

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• The buyer does not: (1) continue the business and absorbs the assets itself  (2) intend to use the assets to continue the same kind of business as the seller

• The buyer is not registered for VAT or required to register as a result of the transfer

• There is no supply made, which could include situations such as changes in the constitution of a partnership

• There has been no transfer of assets so there is nothing to which the TOGC provisions can apply

• instances where a limited company is passed from one person to another via the transfer of shares, but the assets still belong to the limited company - there is no change in the ownership of the assets so no supplies to which the TOGC provisions could apply

• Where a VAT-registered farmer transfers his business as a going concern to a farmer who is certified under the Agricultural Flat Rate Scheme there can be no TOGC for VAT as the buyer is not registered or registerable for VAT

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Note :  The TOGC rules are compulsory. You cannot choose to ‘opt out’. So, it’s very important that you establish from the outset whether the business is being sold as a TOGC. Incorrect treatment could result in corrective action by HMRC which may attract a penalty and interest.

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​For more specific details of how to treat the transfer of assets and or a business as a TOGC, please refer to HMRC's Notice on this subject in the link below.

 

Transfer a business as a going concern (VAT Notice 700/9) 

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-Contains public sector information licensed under the Open Government Licence v3.0.

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