What is a Transfer of a Going Concern (TOGC) and how does it affect VAT on invoices?
A Transfer of a Going Concern (TOGC) is a sale of a business (or part of a business) as a going concern, where the transaction is treated as neither a supply of goods nor a supply of services for VAT purposes. If TOGC conditions are met, no VAT is charged on the purchase price. TOGC treatment prevents the buyer from having to pay and recover VAT on a business purchase, simplifying the transaction.
What conditions must be met for TOGC treatment?
UK TOGC conditions (HMRC Notice 700/9): (1) The assets transferred must be capable of being operated as a going concern; (2) The buyer must intend to use the assets to carry on the same kind of business; (3) The buyer must be VAT-registered (or become VAT-registered as a result of the transfer); (4) There must be no significant break in the trading activity; (5) Where land is included with an option to tax, the buyer must also opt to tax the land; (6) The sale must not be part of a series of transactions designed to fragment the business. All conditions must be met simultaneously.
Frequently Asked Questions
- Is a share purchase a TOGC?
- No. A share purchase is not a TOGC. In a share purchase, the buyer acquires the shares of the company (not its assets), so no supply of business assets occurs. The company itself continues to own and operate its assets unchanged. VAT does not arise on the share purchase because a share sale is an exempt financial transaction. TOGC applies only to asset transfers where the business assets change hands directly.
- What invoicing obligations apply in a TOGC?
- In a TOGC, the seller should not charge VAT on the purchase price. However, the sale agreement should clearly state that the transaction qualifies as a TOGC. If VAT is incorrectly charged, the buyer cannot recover the VAT (as the transaction is outside the scope of VAT), and the seller may need to correct the VAT return. The seller should obtain a written statement from the buyer confirming that the buyer is VAT-registered and meets TOGC conditions before completing the transfer.