- Author
- Arslan Mohsin, ACA
- Published
- Reading time
- 3 min read
Where a business is sold as a going concern, the sale can be treated as outside the scope of VAT. That removes a significant cash-flow burden from the transaction, but the relief is conditional, and getting it wrong can leave either party exposed to an unexpected VAT liability.
What Is a Transfer of a Going Concern?
A Transfer of a Going Concern (TOGC) is the sale of a business, or part of a business capable of separate operation, together with the assets needed to run it. Where the TOGC conditions are met, the transfer is treated as neither a supply of goods nor a supply of services, so no VAT is charged on the sale price.
The Core Conditions
- The assets must be sold as part of a business carried on as a going concern.
- The buyer must use the assets to carry on the same kind of business as the seller.
- There must be no significant break in the normal trading pattern before or immediately after the transfer.
- Where the seller is VAT registered, the buyer must be VAT registered, or become registered, at the time of the transfer.
- Where only part of a business is transferred, that part must be capable of operating separately.
Property Within a TOGC
Where the transfer includes land or buildings on which the seller has opted to tax, the buyer must also opt to tax the property and notify HMRC, and confirm that the option will not be disapplied, before the relevant transfer date. Missing this step is the most common reason a property TOGC fails.
Practical Points for Buyers and Sellers
| Issue | Seller | Buyer |
|---|---|---|
| VAT registration | Confirm registration status and whether it should be cancelled or transferred | Ensure registration is in place at the transfer date |
| Option to tax | Disclose any option to tax on property included | Opt to tax and notify HMRC before the transfer date |
| Business records | Agree who retains VAT records after completion | Request records needed to support future returns |
| Contract wording | Include a VAT clause covering a failed TOGC | Seek warranties that TOGC conditions are met |
VAT registration
- Seller
- Confirm registration status and whether it should be cancelled or transferred
- Buyer
- Ensure registration is in place at the transfer date
Option to tax
- Seller
- Disclose any option to tax on property included
- Buyer
- Opt to tax and notify HMRC before the transfer date
Business records
- Seller
- Agree who retains VAT records after completion
- Buyer
- Request records needed to support future returns
Contract wording
- Seller
- Include a VAT clause covering a failed TOGC
- Buyer
- Seek warranties that TOGC conditions are met
Important
TOGC treatment is not optional. If the conditions are met, the transfer is outside the scope of VAT and VAT must not be charged; if they are not met, VAT is due. Both parties should take advice before completion.
Frequently Asked Questions
No. If the transaction qualifies as a TOGC, VAT charged in error is not properly due, and the buyer may be unable to recover it as input tax.
No, but the buyer must carry on the same kind of business. A change of branding does not prevent TOGC treatment.
The registration number can be transferred, but this also transfers past VAT liabilities. It should only be done after specific advice.
Buying or selling a business?
We review transaction structure, VAT treatment and contract wording so that the tax position is settled before completion.
Disclaimer
This post provides general information about VAT on transfers of a business as a going concern in Scotland and the UK. Specific requirements may vary based on your individual or business circumstances. Always consult with a qualified accountant or advisor, like Stratton Financial Limited, before taking any action or making financial decisions related to a business transfer.
