This notice explains whether the transfer of a business should be treated as a ‘transfer of a business as a going concern’ (TOGC) for VAT purposes
Normally the sale of the assets of a VAT-registered business, or a business required to be VAT registered, will be subject to VAT at the appropriate rate. But if you sell assets as part of a business which is a going concern then, subject to certain conditions, no supply takes place for VAT purposes and no VAT is chargeable.
When it is a TOGC
For there to be a TOGC for VAT purposes, all of the following must apply:
- 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
When it is not a TOGC
There are sales which fail to meet the conditions in paragraph 1.4. These include, but are not limited to:
- the buyer does not:
- continue the business and absorbs the assets itself
- 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
Rules following a TOGC
This section explains the rules following a TOGC in relation to a number of different areas that may be affected by TOGC.
Capital Goods Scheme considerations
The scheme applies where the value of taxable supplies, other than zero-rated ones, received in connection with the acquisition or creation of any of the items listed is £250,000 or more. In the case of computers and computer equipment the scheme only applies where the value of the supply is £50,000 or more. These items are:
- certain property expenditure of £250,000 or more
- aircraft, ships, boats and other vessels with a VAT-exclusive value of £50,000 or more
- a computer or an item of computer equipment
- related self supplies if relevant
De-registration and goods still owned by the original business
If you transfer your business as a TOGC and are not going to continue trading in another capacity you will need to cancel your VAT registration using form VAT7.
But, if you’re cancelling your registration and have any goods which you’ve claimed input tax on and are not transferring with the business, you will normally have to account for VAT on these assets.
Transfer of the previous owner’s registration number
In certain circumstances the buyer can apply to keep the seller’s VAT registration number. As part of that application both the seller and the buyer must agree to the consequences of reallocation.
The transfer of a VAT registration number can be requested using HMRC online services or by completing form VAT68.
Business records
How business records are treated will depend on whether the buyer has taken on the seller’s VAT registration number.
The seller of a business (or part business) sold as a TOGC retains the business records, unless the VAT registration number is also transferred. But, the seller must make available to the buyer the information necessary for the buyer to comply with their duties under the VAT Act.
Giving away goods or services owned by the previous business
The buyer may be liable for VAT on the deemed supply of assets taken into private use or disposed of as gifts, where the assets were transferred to them and the seller originally reclaimed input tax on the purchase of those assets.
Under the normal rules, when a business gives away goods or services on which input tax has been recovered, VAT is due on that disposal. Business gifts costing £50 or less or free samples are exceptions to this rule.
Intrastat rules
VAT-registered businesses are required to complete statistical Supplementary Declarations if their intra-EU trade exceeds annually set value thresholds for either dispatches (exports) or acquisitions (imports) of goods.
TOGC interaction with customs authorisations
It’s important to note that the treatment of a transfer of a business as a TOGC for VAT purposes may well give rise to registration issues for:
- customs authorisations
- excise and inland customs approvals
When a property business can be transferred as a TOGC
You will be making a transfer of a business capable of being treated as a TOGC if you own any of the following:
- the freehold of a property, which you let to a tenant, and sell the freehold with the benefit of the existing lease, a business of property rental is transferred to the buyer – this is a business transferred as a TOGC, even if the property is only partly tenanted
- the lease of a property (which is subject to a sub-lease) and you assign your lease with the benefit of the sub-lease
- a building where there’s a contract to pay rent in the future, but where the tenants are enjoying an initial rent free period, even if the building is sold during the rent free period, you’re carrying on a business of property rental capable of being transferred
- a property and have found a tenant, but not actually entered into a lease agreement when you transfer the freehold to a third party (with the benefit of a contractual agreement for a lease but before the lease has been signed), there is sufficient evidence of intended business activity for there to be a property rental business capable of being transferred
- a number of let freehold properties, and you sell one of them, the sale of this single let or partly let property can be a TOGC of a property rental business
It will also be capable of being a TOGC if you:
- grant a lease of the property, but retain an interest that has a value of no more than 1% of the value of the land or property immediately before the transfer (disregarding any mortgage or charge)
- are a tenant of a building, you have sub-let part of that building, and you surrender your lease to the landlord with the benefit of the subleases, then you are transferring your property rental business because the landlord will become the landlord of the sub-tenants
- are a property developer selling a site as a package (to a single buyer) which is a mixture of let and unlet, finished or unfinished properties, and the sale of the site would otherwise have been standard-rated
- are a business, owning land which you begin to develop with the intention of constructing buildings for sale (and these supplies would be taxable supplies), and you perform work on the land such as widening roads and installing utilities – if a part of this partially developed land is then sold to a property developer who intends to complete the development and sell the newly constructed buildings, this transaction can be part of a TOGC because although you never made taxable supplies, there was the intention to do so
- have a partially-let building which is capable of being a property rental business, providing that the letting constitutes economic activity, but such cases should be considered on their facts – HMRC would not see a TOGC if the letting element of the transaction was so small as to be negligible
- purchase the freehold and leasehold of a property from separate sellers without the interests merging and the lease has not been extinguished, providing you continue to exploit the asset by receiving rent from the tenant
When a property business cannot be transferred as a TOGC
You will not be making a transfer of a business capable of being treated as a TOGC if you:
- are a property developer who has built a building, and you allow someone to occupy temporarily (without any right to occupy after any proposed sale) or you are ‘actively marketing’ it in search of a tenant, there is no property rental business being carried on
- grant a lease retaining an interest that has a value that is greater than 1% of the value of the property immediately before the transfer (disregarding any mortgage or charge) – where more than one property is transferred at one time, this test should be applied on a property by property basis rather than for the entire portfolio
- sell a property freehold to the existing tenant who leases the whole premises from you, this cannot be a TOGC because you are not transferring your property rental business to the tenant
Transfer a VAT registration number
Form VAT68 must be completed if the seller and buyer of a business want to apply to transfer a VAT registration number.
Cancel your VAT registration
Online from your Gateway
You can also fill in and send form VAT7 to cancel your VAT registration