VAT on business disposals

By Tolley

The following Owner-Managed Businesses guidance note by Tolley provides comprehensive and up to date tax information covering:

  • VAT on business disposals
  • Conditions for transfer of a business as a going concern
  • Deduction of related input tax on expenses
  • VAT registration
  • Output tax incorrectly charged
  • Change in legal entity
  • Other points on TOGC

VAT is normally charged on the sale of goods or services in the course or furtherance of a business. However, if a business is transferred as a going concern, the supply is outside the scope of VAT. In other words it is not treated as a supply of goods or services and therefore no output tax is due to be accounted for on the supply of that business.

VAT legislation and extra-statutory material links in this guidance note are subscription sensitive.

For more information, see the Overview of a transfer of a business as a going concern guidance note in the VAT module, and other notes in that subtopic (subscription sensitive).

Where a business disposal is by way of a sale of company shares, the transfer of going concern situation does not apply. The sale of shares and securities is exempt from VAT. See VAT Notice 700/9  for more information.

VATA 1994, s 49; SI 1995/1268

Broadly, for the transfer of a going concern (TOGC) provisions to apply, there must be the sale of a whole business, or part of a business. It is not acceptable to asset strip a business (selling different assets to different people) and claim this is the TOGC.

The TOGC rules are compulsory, so it is very important to establish from the outset whether the business is being sold as a going concern.

Conditions for transfer of a business as a going concern

Subject to certain exceptions, the supply by a person of the assets of his business to a person to whom he transfers that business (or part thereof) as a going concern is neither a supply of goods nor a supply of services, provided all the following conditions are satisfied:

  • the assets

More on Selling the family business: