V7.177 Key rules for transfer of a going concern situation to be met
The two examples illustrated at V7.176 were both very clear-cut. In the first example, there was no business sale, and the assets of the business were being sold off on a piecemeal basis. In the second example, an actual business was being sold – in effect, all that was changing was the ownership of the business from one person to another.
There are other situations where the rules may not be so simple, for example, in the following scenarios.
• What would happen if the person buying the business wanted to change the activity slightly – for example, buying an Indian restaurant but changing it into a Chinese restaurant?
• What if the new owner wanted to close the business down for six months and go on a world cruise before he started trading? Does the break in trading jeopardise the transfer of a going concern rules?
• What if the new owner had no intention of running the business himself – but wanted to sell it straight away for a profit to a third party?
There are five main conditions (discussed below) that need to be met to satisfy the transfer of a going concern rules – as long as these are all satisfied, then the supply from the vendor to the buyer can be made without charging VAT.
(A) Same type of business must be operated by new owner
The person buying the business must intend to use