Transfer of a Business as a Going Concern (TOGC)

# Transfer of a Business as a Going Concern (TOGC)

When you sell your business or part of it, you might not need to charge VAT on the sale. If certain conditions are met, the transfer can be treated as outside the scope of VAT entirely — this is called a Transfer of a Business as a Going Concern (TOGC). Understanding these rules is important because they are mandatory, not optional, and getting the treatment wrong can result in penalties and interest from HMRC.

What is a TOGC?

Normally, when you sell business assets (such as stock, equipment, goodwill, or premises), you must charge VAT at the appropriate rate if you're VAT registered. However, if you're selling assets as part of a business that is a "going concern" — meaning it's a live, operating business with all the parts needed to keep running — the sale can be treated as a TOGC.

When TOGC rules apply, no supply takes place for VAT purposes and no VAT is chargeable on the transfer. This benefits both parties: the buyer doesn't need to fund VAT on the purchase (improving cash flow), and it simplifies the accounting process by removing the need to value individual assets that might be liable at different VAT rates.

A "going concern" means the business is operating and has all the necessary features to continue operating — it's not just a collection of assets sitting idle.

Conditions that must be met

For a transfer to qualify as a TOGC, all of the following conditions must apply:

1. Sale of business assets

The assets being sold must include items such as stock-in-trade, machinery, goodwill, premises, and fixtures and fittings as part of the business transfer.

2. Same kind of business

The buyer must intend to use the assets to carry on the same kind of business as the seller. The business doesn't need to be identical, but the buyer must be acquiring a functioning business, not simply a collection of assets.

3. VAT registration status

Where the seller is a taxable person (VAT registered or required to be registered), the buyer must either already be VAT registered or become VAT registered as a result of the transfer.

4. Option to tax (for land and buildings)

If land or buildings are included in the sale and would be standard-rated if supplied separately, the buyer must notify HMRC that they have opted to tax the land by the relevant date, and must also notify the seller that their option has not been disapplied by the same date.

5. Part of a business

If only part of a business is being sold, it must be capable of operating as a separate business in its own right.

6. No consecutive transfers

There must not be a series of immediately consecutive transfers of the business.

When a transfer is NOT a TOGC

A sale will not qualify as a TOGC in the following circumstances:

• The buyer does not continue the business and simply absorbs the assets into their existing operations
• The buyer does not intend to use the assets to carry on the same kind of business as the seller
• The buyer is not VAT registered and is not required to register as a result of the transfer
• Only shares in a limited company are transferred (the company still owns the assets, so there's no transfer of assets themselves)
• A VAT-registered farmer transfers their business to a farmer certified under the Agricultural Flat Rate Scheme (the buyer is not registerable for VAT)

If you're VAT registered but haven't yet made taxable supplies, the transfer might not qualify as a TOGC. However, if enough preparatory work has been undertaken before making taxable supplies, there may still be a business capable of being transferred as a going concern.

Why correct treatment matters

The TOGC rules are mandatory — you cannot opt out. It's essential to establish from the outset whether your sale qualifies as a TOGC, as incorrect treatment can result in corrective action by HMRC, potentially attracting penalties and interest.

If VAT is charged when it shouldn't be:

• The buyer cannot reclaim the amount as input tax because no taxable supply actually occurred
• The seller must cancel any tax invoice issued and refund the VAT charged to the buyer, normally by issuing a credit note

If no VAT is charged when it should be:

• Both parties may face penalties and interest charges from HMRC for incorrect VAT treatment

Property and premises transfers

Many TOGC situations involve property, premises, or property rental businesses due to the complexities in this area. The key issue often revolves around the option to tax land and buildings.

If standard-rated land or buildings are part of the transfer, remember that the buyer must have notified HMRC of their option to tax by the relevant date, and must have notified the seller that the option has not been disapplied.

How to notify HMRC

Specific notification requirements apply when a TOGC involves an option to tax on land or buildings. The buyer must use form VAT 68 to notify HMRC of their option to tax the land. This form carries the force of law under the VAT Regulations 1995, Regulation 6(d).

Key principles to remember

Each transfer must be considered individually based on its specific facts and circumstances. There is no "one size fits all" approach to TOGC treatment.

The TOGC provisions exist to simplify VAT accounting when a business changes hands and to protect government revenue by removing a charge to tax in situations where the output tax might not be paid to HMRC (for example, if a business charges tax which the buyer claims as input tax, but the seller never declares or pays it).

A business means any continuing activity mainly concerned with making supplies to other persons for payment. The activity must have a degree of frequency and scale and be continued over a period of time. Isolated transactions are not normally considered a business for VAT purposes.

Sources

• Transfer a business as a going concern (VAT Notice 700/9)

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.