VAT and TOGC

deborahcarpenter

Hi All,

I have a client who has just sold one of his businesses EXCEPT one product that the new owner did not want.

My client set up a new Limited company which just produces this product and bought all stock and machinery etc from the original company just related to this 1 product.

My question is does this come under TOGC for VAT purposes, ie. no vat is claimable on the purchase of stock and assetts etc., my thoughts are although it is a new Limited Company it still falls into 'Transfer of Going Concern' rules.

Any thoughts much appreciated.

Debbie

Monsoon

The main UK law concerning TOGCs is The VAT (Special Provisions) Order 1995 (SI 1995/1268 Art 5). The UK law is derived from Articles 19 and 29 of the Principal VAT Directive (Directive 2006/112/EC). But there are several other legal provisions relating to TOGC. These are Sections 44, 49, 94(6) and Para 8 Schedule 4 VAT Act 1994. Extracts of UK VAT law are shown at section 10.

We see the main conditions as being:

the assets must be sold as part of the transfer of a 'business' as a 'going concern';
the assets are to be used by the purchaser with the intention of carrying on the same kind of 'business' as the seller (but not necessarily identical);
where the seller is a taxable person, the purchaser must be a taxable person already or become one as the result of the transfer;
in respect of land which would be standard rated if it were supplied, the purchaser must notify HMRC that he has 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;
where only part of the 'business' is sold it must be capable of operating separately; and
there must not be a series of immediately consecutive transfers of 'business'.

Examples of situations that do not fall under the TOGC provisions include;

There is no transfer of a business as a going concern through changes in the constitution of a partnership.
If there has been no transfer of assets there is nothing to which the TOGC provisions can apply.
When there is a transfer of shares in a limited company from one person to another, the assets still belong to the limited company. Thus there is no change in the ownership of the assets so no supplies to which the TOGC provisions could apply.
Where a VAT registered farmer transfers his business as a 'going concern' to a farmer who is certified under the Agricultural Flat Rate Scheme there can be no TOGC for VAT since the purchaser is not registered or registerable for VAT (see notice 700/46).

If you are registered for VAT but you have not yet made taxable supplies, the transfer of your business might not be the transfer of a 'going concern'. However, where sufficient preparatory work has been undertaken prior to making taxable supplies there may be a business capable of being transferred as a going concern. Section 6 gives examples of transfers of property, some of which are transfers of businesses as a going concern.

from
http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_ShowContent&id=HMCE_CL_000093&propertyType=document

Looks ok to me I think.

stevo5678

"2.3.7 Transfer of part of your business

If you are transferring only part of your business, that part must be able to operate alone. It does not matter whether it will, in fact, be operated separately from any other businesses the purchaser carries on. An ‘in-house’ function is not a ‘business’ for TOGC condition purposes when it only operates internally. The assets of the part of the business you transfer must have been used to make supplies, they must not merely be used for the overheads of your business (see also paragraph 7.2)."

The new company must be or become VAT registered for no VAT to be charged on the sale. If it is not VAT registered then the selling co will need to charge VAT (as it will effectively be the final 'consumer in the vat chain).