VAT on Transfers of a Business as a Going Concern (TOGC) – Essential Guide for Scottish/British Businesses
Selling or acquiring a business in Scotland or throughout the UK often involves complex VAT considerations. One important relief is the “Transfer of a Going Concern” (TOGC), which can mean no VAT is charged on the sale of certain business assets, helping both buyers and sellers protect cash flow and avoid costly mistakes. Here’s what local businesses need to know.
What is a TOGC?
A TOGC occurs when a business (or part of a business) is sold and meets HMRC’s criteria to be treated as a “going concern.” If the sale meets TOGC rules, it’s outside the scope of VAT in most cases. This means:
No VAT is charged on the sale itself.
If VAT is mistakenly charged, it’s not recoverable by the buyer as input tax.
TOGC Criteria
For a transfer to qualify as a TOGC:
The assets sold must allow the new owner to continue the same kind of business as before.
If the seller is registered for VAT, the buyer must be, or must immediately become, a taxable person.
The part of the business sold must be able to operate independently.
The buyer must notify HMRC about an “option to tax” for property assets, if relevant.
Transfers of company share capital do not count as TOGC—this only applies to business assets, not shares.
Special Considerations for Property, Land & Buildings
Additional rules apply to property sales. An “option to tax” may be required.
Certain property business transfers do qualify as TOGC, but there are exceptions.
The VAT Capital Goods Scheme (CGS) responsibilities will transfer to the buyer if assets are subject to CGS adjustments.
Input Tax Recovery
Buyers can generally recover input tax on expenses related to TOGC, such as legal and agent fees.
Risks & Practical Steps
If VAT is incorrectly charged, the seller should correct this quickly by issuing a credit note and refunding VAT.
Contractual arrangements should protect both parties, including provisions for unexpected VAT charges or penalties.
Contracts should be carefully worded, with warranties to ensure TOGC conditions will be met.
HMRC Guidance & Written Rulings
HMRC is often reluctant to provide written rulings on TOGC status. Sellers and buyers with uncertainty should request written clarification and ensure all facts are disclosed.
Summary for Business Owners in Perth & Kinross and Across Scotland:
TOGC is a valuable VAT relief when transferring all or part of a business. However, strict conditions apply. Both buyers and sellers must carry out due diligence, seek expert advice, ensure proper contractual protections, and notify HMRC of required options to tax for properties. Getting it wrong can result in unexpected VAT liabilities or lost reliefs.
Disclaimer:
This summary is provided for general information. TOGC eligibility, treatment, and contractual wording should always be assessed with expert advice tailored to your business circumstances in Scotland or the UK. Contact Stratton Financial Limited for guidance on business transfers, VAT, and compliance for your next step.
