Land and Property: Transfer of a Going Concern

Buying and selling land or property as part of a transfer of a business as a going concern (TOGC) can offer a number of advantages, but the VAT rules surrounding the process can be complex. The VAT People provides support and guidance for businesses with regard to every aspect of the TOGC process in order to help you overcome these hurdles.

Whether your organisation is the purchaser or the seller, we can help you to draft the necessary clauses in your contracts to ensure you are fully compliant with all of the relevant rules, avoiding any risk of being hit with penalties or interest fees.

Our specialist team has many years of experience in this complicated area, and are best placed to offer any guidance necessary.

We have helped many businesses to navigate the TOGC process, and are here to answer any queries you may have. Contact The VAT People by calling our helpline on 0161 477 6600, or fill out an enquiry form and we will be in touch at a convenient time.

What is TOGC for VAT purposes?

Usually, the sale of the assets of a VAT-registered or VAT registerable business will be subject to VAT at the appropriate rate. However, a TOGC is the sale of a business including assets that is treated as a matter of law, as “neither supply of goods nor a supply of services” by virtue of meeting a number of conditions. In cases where the sale meets these conditions, then the supply is outside of the scope of VAT, and therefore the levy is not chargeable.

TOGC rules are mandatory, and not optional. Therefore, it is important to establish from the outset whether or not the sale is a TOGC.

What are the main conditions of TOGC?

The main conditions involved in TOGC are as follows:

  • The assets should be sold as part of the transfer of a business as a going concern

  • The assets should be used by the buyer with the purpose of carrying on the same type of business as the party selling it, although this does not have to be identical

  • In scenarios where the seller is a taxable individual, the purchaser must be a taxable person already or become one as the result of the transfer

  • In respect of land that would be standard rated if it were supplied, the purchaser 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

  • When 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 business

How we can help you


TOGCs can deliver cash flow benefits and direct financial savings, but as with all things connected to land and property transactions, careful planning is necessary to ensure that all of the relevant VAT considerations are taken into account.

The VAT People has helped many businesses with their TOGC obligations, assisting in the drafting of contract documentation to align with the latest regulatory requirements. 

We can also advise on whether or not your transaction qualifies as a TOGC, drawing upon our many decades of expertise in this field.

If this process is handled incorrectly, HMRC may require that the VAT involved is paid in cases where the correct amount has not been charged by the seller, or repaid if VAT has been charged and improperly claimed by the purchaser. 

Interest charges and penalties may also be required, which is why it is essential to seek out the right advice to ensure that any desired savings are correctly achieved.


How we have helped others


We have helped many organisations in extracting maximum value from their property transactions through the TOGC process, including the following example:

We advised the owner of a large commercial building, which was being developed for both residential and commercial purposes, on the most efficient VAT structure of transferring the building to an offshore trust.

An option to tax was required by the vendor, given that around £250,000 in VAT was at stake depending on the obtainment of planning permission for residential conversion. 

The physical application of VAT to the purchase price would involve an additional £120,000 Stamp Duty Land Tax being payable, which the purchaser wanted to avoid. To complicate the transaction further, there were existing tenants within the commercial area of the building, who remained in place even as the residential conversion was being developed out.

The VAT People managed to facilitate TOGC status to provide actual savings to both parties, a process that included detailed submissions to HMRC and agreement from the body that TOGC status was applicable in this case.


FAQs


How are sales classified as TOGC for VAT purposes?
Usually, the sale of the assets of a VAT-registered or VAT-registrable business will be subject to VAT at the appropriate rate. However, this does not apply in the case of a TOGC, which is the sale of a business plus assets that is legally treated as being neither a supply of goods nor services, by virtue of meeting a number of conditions.

In cases where the sale meets these conditions, this puts the deal outside of the scope of VAT, meaning the levy is not chargeable. TOGC rules are mandatory rather than optional, making it important to establish from the outset whether or not the sale is a TOGC.

What are the main conditions of TOGC?
The main conditions involved in TOGC are as follows:

  • The assets should be sold as part of the transfer of a business as a going concern.
  • The assets should be used by the buyer with the purpose of carrying on the same type of business as the party selling it, although this does not have to be identical.
  • In scenarios where the seller is a taxable business, the purchaser must be a taxable person already, or they must become one as the result of the transfer.
  • In respect of land that would be standard-rated if it were supplied, the purchaser 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.
  • When 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 business following the sale.

 

Contact us

For help and advice on any issue related to TOGC, contact The VAT People by calling 0161 477 6600, or fill out an online enquiry form and we will be in touch.

For more information about the people who’ll be working alongside you to provide the help and advice you need, go to our team page.

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