How does VAT apply to a transfer of a going concern?

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# VAT and the Transfer of a Going Concern (TOGC)

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## What the law says

**The core rule — no supply:** Under **VATA 1994 s.49(1)**, where a business, or part of a business, carried on by a taxable person is transferred to another person as a going concern, the transferee is treated as having carried on the business before as well as after the transfer for the purposes of determining whether the transferee is liable to be registered for VAT.

**Regulations for continuity:** VATA 1994 s.49(2) empowers HMRC to make regulations securing continuity of the Act where a business (or part) is transferred as a going concern and the transferee is registered in substitution for the transferor. Those regulations may provide for liabilities and duties of the transferor to become liabilities and duties of the transferee, and for repayment rights to be transferred — but only where both parties have applied for this.

**Records:** Under VATA 1994 s.49(2A)–(5), the duty to preserve business records may pass to the transferee. Where the transferor retains a record-keeping obligation after the transfer, the transferee may require the transferor to provide information, copies of documents, or access to inspect records. HMRC may also disclose to the transferee information about the business as carried on by the transferor, to enable the transferee to comply with its VAT duties.

**The "neither supply" rule** is given effect by Order under VATA 1994 s.5(3), which treats the transfer of assets of a business (or part) as a going concern as being **neither a supply of goods nor a supply of services**.

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## HMRC guidance / practice

### The basic principle
A TOGC is **not treated as a supply for VAT purposes, so no VAT should be charged**. The TOGC rules are **mandatory, not optional** — it is therefore essential to establish at the outset whether a transaction is or is not a TOGC.

### Conditions for a valid TOGC
To qualify as a VAT-free TOGC, the assets sold must be:
- capable of forming a **separate business in their own right**; and
- used by the purchaser to **carry on the same kind of business** as the seller.

More specifically, all of the following conditions must be met:
1. The business (or part) is **capable of separate operation** after the sale;
2. It is **sold as a going concern**;
3. It is **not part of a series of immediately consecutive transfers**;
4. The buyer **intends to carry on the same kind of business**;
5. Where land and buildings are involved, **further conditions** are met (see below);
6. Where the seller is VAT-registered, the **buyer must be a taxable person** or become one as a result of the transfer.

### What counts as a "going concern"
The effect of the transfer must be to put the new owner in possession of a **business which can be operated as such**. A business can still be a going concern even if it is **unprofitable, or trading under a liquidator, administrative receiver, trustee in bankruptcy, or administrator**. A sale of mere capital assets is not in itself a TOGC — but if the effect of the sale is to put the buyer in possession of a business, it is a TOGC even if assets are transferred on different dates.

### When it is NOT a TOGC
A transaction will fail to qualify as a TOGC where, among other things:
- The buyer does **not continue the business** or does not intend to use the assets to carry on the **same kind of business**;
- The buyer is **not registered for VAT** and is not required to register as a result of the transfer;
- There is **no transfer of assets** (e.g. a change in partnership constitution, or a transfer of shares in a company where the assets remain owned by the company);
- A VAT-registered farmer transfers to a farmer certified under the **Agricultural Flat Rate Scheme** (who is not registerable for VAT).

### Land and buildings
Where land or buildings are included and the seller has **opted to tax** (or is transferring the freehold of a new building that would otherwise be standard-rated), the buyer must additionally have:
- **Opted to tax** (or made a real estate election), notified to HMRC and effective on or before the relevant date; and
- **Notified the seller** that their option to tax will not be disapplied under the anti-avoidance provisions in VATA 1994, Schedule 10, paragraph 12.

### Capital Goods Scheme (CGS)
Where a capital item is disposed of as part of a TOGC, the seller must give the buyer details of the capital item so that **future CGS adjustments** can be made by the new owner for any remaining intervals.

### Input tax on TOGC costs
Since a TOGC is not a supply, input tax on costs incurred in making or receiving a TOGC cannot be attributed to the TOGC itself. Instead:

- **Seller (transferor):** Costs are treated as a **general overhead** of the part of the business being transferred. Input tax is fully recoverable if that part makes only taxable supplies, wholly irrecoverable if only exempt supplies, and apportioned under the partial exemption method if both.
- **Buyer (transferee):** Input tax on acquisition costs is recoverable in full if assets will be used exclusively for taxable supplies, irrecoverable if exclusively for exempt supplies, and apportioned as residual input tax if for both.

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