View the related Tax Guidance about Transfer of a going concern (TOGC)
TOGC ― overview
TOGC ― overviewThis guidance note provides an overview of the transfer of a business as a going concern (TOGC).In-depth commentary on the legislation and case law can be found in De Voil Indirect Tax Service V2.226.For a video overview of the TOGC provisions, see the Transfer of a Going Concern video.This guidance note can be used in conjunction with the Business reorganisations ― review and checklist which can assist with ensuring that all relevant matters are considered.What is a transfer of a business as a going concern?The default position for the sale of business assets by a business which is registered for VAT or required to be registered for VAT (see the VAT registration and deregistration ― overview guidance note) is that it will be subject to VAT at the appropriate rate for the assets in question. However, the sale of assets as part of a business which is a ‘going concern’ will be treated as neither a supply of goods nor a supply of services for VAT purposes provided certain conditions are met. This means that a TOGC is outside the scope of VAT and no VAT is charged. The TOGC treatment is mandatory which means that if the relevant conditions are met, there is no choice but to treat a transfer as outside the scope of VAT. The idea behind the TOGC provisions
TOGC ― conditions
TOGC ― conditionsThis guidance note looks at the conditions which must be met for a transfer to be treated as the transfer of a business as a going concern (TOGC) and hence outside the scope of VAT.For an overview of TOGCs more broadly (including the rationale behind these provisions), see the TOGC ― overview guidance note.In-depth commentary on the legislation and case law can be found in De Voil Indirect Tax Service V2.226.Please see also the following workflow aids:•interactive flowchart ― must the transfer be treated as a TOGC? (for a static pdf version, see the Flowchart ― must the transfer be treated as a TOGC?)•TOGC ― transaction checklistFor some practical examples, see Example 1 and Example 2.What are the TOGC conditions?HMRC suggests that if all of the following apply, a TOGC will be seen as taking place. These conditions are derived from legislation and case law:•the assets, such as stock-in-trade, machinery, goodwill, premises, and fixtures and fittings must be sold as part of the TOGC (ie the new owner must be put in possession of a business that can be operated as such)•the buyer must intend to use the assets in carrying on the same kind of business as the seller (and there must be no significant break in trading)•where the seller is a taxable person, the buyer must be a taxable person already or become one as the result of the transfer•in respect of land or buildings which would be standard-rated
TOGC ― land and property
TOGC ― land and propertyThis guidance note looks at land and property issues associated with TOGCs, specifically:•the rules that apply to ‘standard-rated’ land and buildings transferred as part of a TOGC•property businessesFor an overview of TOGCs more broadly, see the TOGC ― overview guidance note.In-depth commentary on the legislation and case law can be found in De Voil Indirect Tax Service V2.226.What are the rules when transferring standard-rated land as part of a TOGC?Additional conditions apply to certain land and buildings transferred as part of a TOGC. If these conditions aren’t satisfied, then the land and buildings will not be included within the TOGC and instead VAT will need to be charged on the supply of land and buildings. It should be emphasised that this does not affect the rest of the transfer which may qualify for the TOGC treatment provided it meets the conditions described in the TOGC ― conditions guidance note. To establish if a transfer of land and property must be treated as a TOGC, see our interactive flowchart. Alternatively, for a static pdf version, see the Flowchart ― transferring land and property as part of a TOGC.What kinds of land and buildings are affected by these conditions?The rules affect land and buildings which would normally be taxable if they were supplied, namely:•the freehold in certain new or partly completed buildings which would be standard-rated under the provisions set out in the Supplies liable to VAT at the standard rate guidance note•the
TOGC ― VAT recovery
TOGC ― VAT recoveryThis guidance note looks at VAT recovery issues associated with transfers of a going concern (TOGC).For VAT recovery generally, see the Input tax ― overview guidance note and for an overview of TOGCs more broadly, see the TOGC ― overview guidance note.In-depth commentary on the legislation and case law around TOGCs can be found in De Voil Indirect Tax Service V2.226.Why is VAT recovery an issue when there is a TOGC?As described in the TOGC ― overview guidance note, a TOGC is neither a supply of goods nor services and is therefore outside the scope of VAT. This raises questions over how to treat any VAT on costs associated with the TOGC.The treatment of VAT on costs differs slightly for the seller (transferor) and the purchaser (transferee). The position for each is considered in this guidance note.What kinds of costs are associated with a TOGC?There are often costs associated with a TOGC, common examples of such costs include:•solicitors’ fees•estate agents’ costsNotice 700/9, para 2.5What is the VAT recovery position for the seller?VAT on costs associated with the TOGC is treated as non-attributable or residual for the seller (essentially treated as an ‘overhead’ cost) (see the Partial exemption ― de minimis rules guidance note). The implications of this are summarised in the table below:
TOGC ― other related issues
TOGC ― other related issuesThis guidance note looks at a number of issues associated with transfers of going concerns (TOGCs), specifically:•the capital goods scheme (CGS)•VAT registration entitlements / obligations•VAT numbers•transferring VAT records•VAT groupsFor an overview of TOGCs more broadly, see the TOGC ― overview guidance note.In-depth commentary on the legislation and case law can be found in De Voil Indirect Tax Service V2.226.How does a TOGC impact on capital goods scheme obligations?The CGS is covered generally in the Capital goods scheme (CGS) ― overview guidance note. Broadly, it provides that for certain ‘capital items’, it’s necessary to monitor ‘use’ over a period of time to ensure that the VAT recovery initially obtained reflects the actual use of the item over a period of time. For example, if a business bought a building from which to make fully taxable supplies, it could recover input tax in full. However, if the next year the business model changed to fully exempt, the full VAT recovery wouldn’t reflect the actual use of the building. This is why the CGS exists to the extent that the use of the capital items changes during that period, it will be necessary to make adjustments to VAT recovery (CGS adjustments).If a capital item is transferred as part of a TOGC, the new owner will be required to take over the CGS adjustments for any remaining intervals. Purchasers therefore must confirm with the seller whether any of the items are capital items for
Capital goods scheme (CGS) ― dealing with the disposal of assets and other areas of difficulty
Capital goods scheme (CGS) ― dealing with the disposal of assets and other areas of difficultyThis guidance note examines how to apply the CGS when assets are disposed of within the adjustment period, as well as some other common areas of difficulty.For an overview of the CGS more broadly, see the Capital goods scheme (CGS) ― overview guidance note.For detail on how CGS adjustments are calculated, see the Capital goods scheme (CGS) ― intervals and adjustments guidance note.In-depth commentary on the CGS can be found in De Voil Indirect Tax Service V3.470.When are CGS adjustments required?In broad terms, the CGS requires that the use of certain ‘capital items’ is monitored over a period of time (otherwise known as an ‘adjustment period’). If, during this adjustment period, the use of the capital items changes then an adjustment must be made to the amount of input tax which was initially recovered on the capital item. This adjustment is designed to reflect the change in the way that the capital item is being used. For example, a capital item might be acquired and initially used solely for taxable business purposes. On this basis, a business would initially recover the input tax on the capital item in full (subject to the normal input tax recovery rules, see the Input tax ― conditions for recovering VAT guidance note). However, if later during the CGS adjustment period the business starts using the capital item for partly exempt purposes then a CGS adjustment would be required.
Margin scheme ― the global accounting margin scheme
Margin scheme ― the global accounting margin schemeThis guidance note provides an overview of the main principles of the global accounting scheme and this note should be read in conjunction with the Overview of margin schemes and Operating the margin scheme guidance notes.The global accounting scheme is a simplified version of the margin scheme.The key difference compared to the usual margin scheme rules is that for businesses using the global accounting margin scheme is the way the margin is calculated. Under the global accounting margin scheme, the margin is the difference between the eligible total purchases and total eligible sales made during the VAT return period, rather than the margin on the sale of individual items.Businesses that would predominately benefit from using this scheme are those that:•buy / sell high volume, low value goods•cannot keep the accounting records that are required to use the normal margin schemeThe scheme can only be used for goods that cost £500 or less per item and the goods which are not excluded from the scheme (see below).Excluded goodsNone of the goods listed below can be sold using the global accounting scheme:•aircraft•boats (including outboard motors)•caravans and motor caravans ― see the Margin Scheme ― houseboats and caravans•horses and ponies ― see the Margin scheme ― horses and ponies guidance note •motor vehicles / motorcycles (excluding vehicles that have already been broken up for scrap) ― see the Margin scheme ― second hand motor vehicles guidance noteVATMARG03100; SI
Option to tax ― deciding whether to opt
Option to tax ― deciding whether to optThis guidance note discusses some of the key considerations that a person should take into account when deciding whether to opt to tax land and buildings.For an overview of the option to tax more broadly, see the Option to tax ― overview guidance note.For in-depth commentary on the legislation and case law around the option to tax, see De Voil Indirect Tax Service V4.115C.Advantages of opting to tax land and buildingsInput tax recoveryThe main advantage of opting to tax property is securing VAT recovery. Generally, VAT which is incurred on costs used to make exempt supplies of land and buildings is irrecoverable. By opting to tax, supplies of the property become standard-rated and VAT on costs used to make the supplies becomes recoverable, subject to the normal input tax recovery rules. For input tax recovery generally, see the Input tax ― overview guidance note.To assess how worthwhile it is to opt to tax, a business needs to consider how much input tax is at stake (ie how much input tax can be recovered if the business opts compared with how much would be recovered if it does not opt to tax). The option to tax is likely to be more desirable where large amounts of input tax have been suffered.Circumstances in which large amounts of input tax may be incurred may include (for example) VAT being charged on the initial purchase of a property, or VAT being incurred on significant works done
Partial exemption ― special methods
Partial exemption ― special methodsThis guidance note provides an overview of the use of partial exemption special methods in order to calculate the amount of recoverable input tax.For an overview of partial exemption more broadly, see the Partial exemption ― overview guidance note.For in depth commentary on the legislation and case law, see De Voil Indirect Tax Service V3.462.What is a special method?Where a business does not believe that the standard method described in the Partial exemption standard method guidance note is a fair way for apportioning its input tax, it may seek to agree a fairer special method with HMRC. A special method is any other method than the standard method. A special method needs to be approved in writing by HMRC before it can be used by a partly exempt business to calculate the amount of recoverable input tax. Special methods can be unique to a business and designed to deal with its particular type of activity or set of activities. It is possible to use a combined special method which deals not only with partial exemption but also with apportionment of VAT incurred in relation to business and non-business activities. The question of whether a special method is fairer that the standard method will not necessarily be a straight forward one. For example, in one Tribunal case a company proposed a method based on floor-space which HMRC disputed was fairer than the standard method. The Tribunal ultimately sided with the company but HMRC was keen to
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