Explaining the meaning of a TOGC
A TOGC is a transfer of a business as a going concern for VAT purposes.
If a business is sold as a going concern and the relevant conditions are met, VAT can be disregarded from the transaction as it is treated as outside the scope of VAT.
To qualify as a TOGC for VAT, the following needs to apply:
The assets such as equipment, machinery, goodwill, premises and fixtures and fittings must be sold as part of the TOGC;
• the buyer must intend to use the assets in carrying on the same kind of business as the seller;
• where the seller is a taxable person, the buyer must already be one, or become one as the result of the transfer;
• where only part of the business is sold, it must be capable of operating separately:
• there must not be a series of immediately consecutive transfers of the business;
• in respect of land and building, which would be standard rated if they were supplied, the buyer must notify HMRC that they have opted to tax the land/building by the relevant date, and must notify the seller that their option has not been disapplied by the same date
Examples of sales which fail:
Where the buyer does not continue the business himself or intends to use the assets in the same kind of business as the seller;
• where a limited company is passed from one person to another with the transfer of shares, but as the assets still belong to the company, there has been no change in ownership so no effective supply.
The TOGC rules are compulsory so you cannot choose to opt out or not to apply them.
Therefore, it is important to establish early on in any sale whether the business is being sold as a TOGC.
If the transaction is dealt with incorrectly then HMRC have the right to charge a penalty and interest. Furthermore, if VAT is charged when it should not have been, then the buyer will not be able to reclaim it as input tax and the seller will have to cancel any tax invoice issued and provide the new owner with a refund of the VAT charged, usually by way of a credit note or similar document. Some of the trickier issues with TOGC relate to land and buildings and this is a very much more detailed area.
