HMRC have announced an exception to the place of supply rules regarding supplies…
Land and Property: Transfer of a Going Concern
TOGC status means that a transaction is not a supply for VAT purposes. This means that at the very least VAT cash flow savings can be realised. But there are conditions that need to be met, and given that whether a TOGC applies or not is a 'matter of fact', care should be taken when dealing with TOGCs to ensure that the conditions are met.
We often assist businesses, be they purchaser or seller, with regards to TOGCs, including drafting necessary clauses in contracts. Bear in mind that if incorrect, HMRC may not just seek the VAT involved to be paid (if incorrectly not charged by the seller), or repaid (if incorrectly charged and claimed by the purchaser), but also interest and penalties. Planning is, as always, vital to ensure any desired savings are correctly achieved.
An example of how a TOGC can assist in a property transaction is as follows:
In this particular case, we advised a client that owned a large commercial building, that was being developed into both residential and commercial, on the most efficient VAT structure of transferring the building to an off-shore trust. An option to tax was needed for the vendor, given that circa £250k VAT was at stake on the obtainment of planning permission for residential conversion. The physical application of VAT to the purchase price would involve additional £120k SDLT being payable, which the purchaser wanted to avoid. There were existing tenants in the commercial element which were to remain, and the residential conversion was to be developed out. We managed to facilitate TOGC status to give both parties actual savings, and this included detailed submission to, and agreement from, HMRC that TOGC status applicable.
TOGCs can afford both cashflow and actual savings and in particular, as with all things connected to land & property transactions, prior planning should be made to maximise the VAT position.
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