VAT considerations when buying or selling a business
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The VAT consequences of determining whether TOGC treatment applies is significant, particularly where large transactions or property assets are involved.
Our experts can assess the VAT implications of transactions, identify potential risks and support you through the planning and implementation process.
When a business is bought or sold, one of the key tax considerations is how the transaction should be treated for VAT purposes. While many transactions involving the sale of assets are subject to VAT, certain business transfers may qualify as a Transfer of a Going Concern( TOGC), meaning the transaction can be treated as outside the scope of VAT.
The VAT implications of a transaction can have a significant impact on cash flow, deal structuring and timing. Understanding whether TOGC treatment may apply at an early stage can help businesses avoid unexpected costs and reduce the risk of disputes with HMRC.
What is a Transfer of a Going Concern( TOGC) for VAT purposes?
A Transfer of a Going Concern, commonly referred to as a TOGC, arises where a business, or part of a business, is transferred from one party to another and certain conditions are met.
Where the requirements for TOGC treatment are satisfied, the transfer is treated as being outside the scope of VAT. There is no option to elect into or out of this treatment; if the conditions are met, TOGC treatment is mandatory. In practical terms, this means VAT doesn’ t need to be charged on the sale. The rules exist to facilitate business transfers by preventing VAT from creating unnecessary cashflow burdens, or even VAT costs. Without TOGC treatment, a buyer may have to fund VAT on completion and recover it through their VAT accounting at a later date, in full or in part depending on the nature of their business.
TOGC treatment can apply across a range of transactions, from the sale of an entire trading business to the transfer of a property letting business or a distinct business division.
When can TOGC VAT treatment apply?
Whether a transaction qualifies for TOGC treatment will depend on the specific facts and circumstances. While the detailed rules can be complex, a number of key principles generally need to be considered.
The business must be capable of continuing
The transfer must involve more than the sale of assets – typically both tangible and intangible assets. Broadly speaking, there needs to be a business operation that is capable of continuing separately after the transfer.
This is one of the key distinctions between a business transfer and a simple asset sale.
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Sheryl Davis Partner, High Wycombe
sheryl. davis @ saffery. com + 44( 0) 1494 416080 www. saffery. com
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