Land and Property: Transfer of a Going Concern

Buying and selling businesses (including assets such as land and/or property) as part of a transfer of a going concern (TOGC) can provide significant advantages, but the VAT rules surrounding this process can be complex. The VAT People offer support and guidance for VAT registered businesses in every aspect of the TOGC process, helping you to remain compliant and avoid penalties or interest fees.

The TOGC provisions, which are compulsory where all relevant conditions are met, stipulate that qualifying sales of a business fall outside the scope of VAT, with no output VAT due on the sale. This can often include assets such as land/property, for example where a commercial property is being sold with a tenant in situ, this may constitute the sale of a property rental business, with the TOGC provisions potentially applicable. For the TOGC conditions to apply, the purchaser must be in receipt of an operable business, which it will use to continue the same kind of the business as the seller. 

Whether your organisation is the purchaser or the seller of a businesswe can assist in confirming whether the conditions are met to treat this as a VAT free transfer of a going concern, as opposed to a potentially taxable supply. This ensures that your business transactions align with all relevant rules and regulations.

The costs involved in these types of transactions is often significant, and consequently VAT involved can be substantial. Therefore, it is crucial to establish from the outset whether the sale may qualify as a TOGC to avoid a retrospective requirement to account for VAT.

Our specialist team, with extensive experience in this area, is well-equipped to provide VAT registered businesses with the guidance needed to navigate the TOGC process.

How we can help you

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 filling out our enquiry form and we will be in touch at a convenient time.

TOGCs can deliver cash flow benefits and direct financial savings, but as with all things connected to land and property transactions, careful prior 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, confirming whether the compulsory rules are met to treat this as outside the scope of VAT and, if this is not the case, what steps could be taken to ensure these are met, where this is desired .

If this process is handled incorrectly, HMRC may require that the VAT is retrospectively accounted for, which may constitute an irrecoverable cost to the purchaser depending on it’s activities, or repaid if VAT has been charged and improperly claimed by the purchaser.

Interest charges and penalties may also be required, so it is essential to seek 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 the transactions described above through the TOGC process, including the following example:

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

The vendor required an option to tax, given that around £250,000 in VAT was at stake depending on the obtaining 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

What is a transfer of a going concern (TOGC) for VAT-registered businesses?

For VAT-registered businesses, a transfer of a going concern (TOGC) occurs when a business or part of it, including its assets, is sold. If the sale meets specific conditions, it is treated as neither a supply of goods nor services and is therefore outside the scope of VAT. For a transaction to qualify as a TOGC, it must involve the transfer of business assets in such a way that the buyer can continue the same kind of business as the seller.

How are sales classified as TOGC for VAT purposes?

For VAT registered businesses, the sale of business assets is normally subject to VAT. However, a transfer of a going concern (TOGC), which includes the transfer of business assets, is treated as neither a supply of goods nor services. This distinction ensures that the transaction falls outside the scope of VAT, beneficial for businesses understanding that TOGC rules are mandatory.

What are the main conditions of TOGC?

The main conditions involved in TOGC are as follows:

• Condition 1. The assets used by the purchaser must be used in carrying on the same kind of business as that carried on by the seller prior to the transfer. If the purchaser is to carry on a different kind of business, VAT must be charged in the normal way. For TOGC’s involving commercial property, this may require the purchaser to opt to tax any properties, where this has been done by the seller. 
• Condition 2. Where the seller is a taxable person, the purchaser must already be a taxable person or immediately become one as a result of the transfer. 
• Condition 3. In relation to a part transfer, that part must be capable of separate operation.
• Condition 4. The transfer must put the purchaser in possession of an operable business – a sale of capital assets is not in itself a TOGC. 
• Condition 5. The business that is transferred must be a ‘going concern’, i.e. in operation at the time of transfer. 
• Condition 6. There must not be a series of immediately consecutive transfers of the business. 
• Condition 7. There must be no significant break in the normal trading pattern before or immediately after the transfer.

What is TOGC for VAT purposes?

Usually, in isolation, 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 meeting several 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.

How can VAT-registered businesses benefit from a transfer of a going concern (TOGC)?

VAT-registered businesses can benefit from a TOGC as it allows the transfer of business assets without VAT being charged. For the transaction to be considered a TOGC, the transfer must include business assets that enable the buyer to carry on the same kind of business. Additionally, for VAT-registered businesses, it means that the transfer is treated as neither a supply of goods nor services, hence outside the scope of VAT.

What steps should VAT registered businesses take to ensure a successful transfer of a going concern (TOGC)?

Businesses should first verify that the transfer qualifies as a TOGC, meaning it should involve the transfer of business assets that allow the continuation of the same kind of business. Secondly, businesses should ensure all documentation correctly reflects the nature of the transfer as neither a supply of goods nor services. Lastly, businesses must confirm that the new owner is or will become VAT registered if necessary, and that the transfer can operate as a separate operation if only part of the business is being sold.

What challenges might VAT registered businesses face during a transfer of a going concern (TOGC) and how can they be addressed?

Businesses may face challenges in determining whether the transfer qualifies as a TOGC, particularly in distinguishing the sale as neither a supply of goods nor services. They may also struggle with ensuring the continuation of the same kind of business with the transferred assets. VAT registered businesses should seek professional advice to ensure compliance with VAT regulations, accurately transfer business assets, and maintain clear records that support the transaction's status as a TOGC. Additionally, they must ensure the business sold can function as a separate operation if not sold in its entirety.