VTOGC1150 - Introduction: General approach
It is important to be aware that the TOGC rules are mandatory and not optional. Businesses cannot choose to ‘opt out’. This was confirmed in the tribunal case:
Advanced Business Technology (LON/83/195)
The purchaser paid VAT to the seller on the purchase price. The output tax was not declared. Both parties agreed that a TOGC had taken place but the seller did not repay the VAT charged. The purchaser used the VAT tribunal to force him to do so. Although not happy that a tribunal was being used in this way, it confirmed that once a TOGC had been agreed and the conditions in the law met, both parties were bound by it and could not opt out.
In C & E Commissioners v Dearwood Ltd QB [1986] STC 327 a company that sold reproduction furniture from leased premises went insolvent and another company agreed to purchase the lease, stock and fixtures and fittings. Despite the purchaser maintaining that they did not intend to carry on the existing business but to instead retail kitchen and bathroom furniture, this was found to be a transfer of a going concern
“…it is quite plain, in my judgment, from the facts which were found that, although that may have been the taxpayer company’s ultimate intention, namely to concentrate on the sale of kitchens and bedrooms, the intention was at least for a time to carry on exactly the same business as had been carried on before. Moreover, it is apparent from the findings of fact that the same kind of business was carried on at least for a time.” (McCowan J)
If all the conditions for TOGC are met (VTOGC2050) VAT must not be charged or accounted for on assets transferred. There are exceptions to this where land forms part of the transaction. See VTOGC6050)
As TOGC is an exception to the general principle that VAT is due on supplies of goods and services many businesses are unaware of the special rules and the fact that they are mandatory. This is compounded by the fact that often the purchaser of a business is new to VAT and as such may assume that VAT should be charged. By the time the purchaser becomes aware of this the seller may be long gone and it will be difficult for the purchaser to chase him for the “tax” incorrectly charged. Nonetheless, where “VAT” has been wrongly charged, strictly speaking it is a matter to be resolved between the seller and the purchaser: it is not a matter for HMRC. However, exceptionally, in certain circumstances we may not seek to recover the “input tax wrongly claimed by the purchaser”, see VTOGC4150.
Where there would normally be a single supply for VAT purposes, it is not possible for part of the transfer to constitute a TOGC and the other part to be a taxable or exempt supply. It will either be a TOGC or a supply of the asset.
Officers need to be aware of the relationship between VAT and Stamp Duty Land Tax (SDLT) and the likelihood that a business may seek to utilise TOGC rules as a means of reducing SDLT, see SDLTM . You may also need to be aware of the relationship between VAT and the Land and Buildings Transaction Tax administered by Revenue Scotland.