4 comments on “VAT-free transfer of a business as a going concern?

  1. Was the point made at para 27 (a VAT group is a single entity) addressed fully? It doesn’t seem to be: the judgement says at 34-38 that the non-representative members aren’t carrying on any business and so can’t receive a TOGC, but the logical consequence of this would be that input VAT couldn’t be recovered if paid by a non-representative member either. As the latter is clearly not the case, why should the former be?

    It’ll be interesting to see what the upper tribunal makes of this.

    • Andrew
      Thank you for your comments and observations.

      I think there are two separate issues involved with your analysis. Firstly there is the question of whether a transaction qualifies for VAT-free treatment as a TOGC. Secondly, and quite differently, is the question of input tax recovery.

      Taking the second point first – if a non-representative member of a VAT group registration incurs input tax it is deemed to be incurred by the representative member and is reclaimable to the extent that the group makes taxable supplies. This would be the case even if the company that initially paid for the goods/services only makes intra-group supplies. The point is that one “looks through” the transaction to link the cost with onward taxable supplies made by the group as a whole.

      That is a different issue to whether or not the initial transaction is subject to VAT in the first place because of the special rules for TOGS.

      For a TOGC to be VAT-free, certain conditions must be met, one of which is that the recipient must continue to operate the acquired business in a similar manner to how it was carried on before. As the acquirer is by proxy the representative member, the group must be seen to be carrying on the same kind of business to qualify for TOGC. As the group will not be making taxable supplies by way of use of the assets acquired (i.e. to external 3rd parties), it cannot be said to be carrying on the same type of business – that was making taxable supplies using the assets transferred.

      The consequence is that VAT is chargeable on the transfer but would still be reclaimable to the extent that the group as a whole is making taxable supplies. If the group happens to be making exempt supplies then the input tax will be subject to the groups partial exemption restrictions in the normal way.

      I hope this clarifies the rational applied by the FtT in supporting HMRC’s interpretation.
      Mark.

      • Thanks for the reply. I think I may have been misreading para 24 of the judgement, which talks about the transferee making supplies within the group, and therefore gone up the garden path a bit.

        Although I think when you say “As the group will not be making taxable supplies by way of use of the assets acquired (i.e. to external 3rd parties), it cannot be said to be carrying on the same type of business – that was making taxable supplies using the assets transferred” you’re speaking a bit broadly. The assets will still be used to make taxable supplies, the problem is that the future supplies by the group are different from the previous supplies by the stand-alone company.

        The TOGC rules are just too narrowly drawn, in my opinion. If the people sitting at desks are doing exactly the same thing before and after the transaction it ought to be a TOGC, in my book. This sort of mis-match comes from looking at supplies (which is after all the focus of VAT) and looking well down the supply chain to the end user, whereas I think it would be more appropriate to look at the immediate activity of the business transferred.

        So: the right result according to the rules, but the wrong rules. In my view 🙂

      • I think you are right in your analysis Andrew….. right result, wrong rules. I appreciate your logic but then we are talking VAT here!

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