Land and Property: Transfer of a Going Concern
The VAT People provides support and guidance for businesses with regards to every aspect of the VAT process, including transfer of a going concern (TOGC). We can help organisations, whether they are a purchaser or seller, to draft necessary clauses in contracts to ensure you are fully compliant with the rules regarding complex processes.
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 can 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
The VAT People has helped many businesses regarding TOGC, whether they are a purchaser or a seller. We have assisted in drafting any necessary clauses in contracts, as well as advising on whether or not transactions qualify as TOGC’s.
It is important to consider that if incorrect, HMRC may not only 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 vital to ensure any desired savings are correctly achieved.
Below is an example of how a TOGC can assist in a property transaction.
We advised a client that owned a large commercial building, which 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, as with all things connected to land and property transactions, prior planning should be conducted to maximise the VAT position.
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.
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