The transfer of a business as a going concern (TOGC) rules consider the VAT liability on the sale of a business. Normally, the sale of the assets of a VAT registered or VAT registerable business will be subject to VAT at the appropriate rate.
Where the sale of a business includes assets and meets certain conditions, the sale will be categorised as a TOGC. A TOGC is defined as ‘neither a supply of goods nor a supply of services’, and is therefore outside the scope of VAT. Under the TOGC rules no VAT would be chargeable on a qualifying sale.
HMRC lists the following conditions necessary for a TOGC as follows:
The TOGC rules can be complex, and both the vendor and purchaser of a business must ensure that the rules are properly followed. The TOGC rules are also mandatory, which means that it is imperative to establish from the outset whether a sale is or is not a TOGC. For example, if VAT is charged in error, the buyer has no legal right to recover it from HMRC and would have to seek to recover this ‘VAT’ from the seller.