Transfer of a going concern (TOGC) definition

ˈtrænsfə(ː)r ɒv ə ˈgəʊɪŋ kənˈsɜːn (tiː-əʊ-ʤiː-siː)

What does Transfer of a going concern (TOGC) mean?

Also known as

TOGC in a nutshell

Normally the sale of business assets will be subject to VAT at the appropriate rate for the assets in question. However, the sale of assets as part of a business which is a ‘going concern’ (TOGC) will be treated as outside the scope of VAT provided certain conditions are met. This treatment is mandatory so if the conditions are met, no VAT must be charged on the transfer.

What’s the purpose of the TOGC provisions?

Broadly speaking the theoretical purpose of the TOGC provisions is twofold:

  • to ‘simplify’ VAT accounting when a business or part of a business is sold (eg VAT doesn’t need to be charged and subsequently recovered, and therefore there is no need to determine the VAT liability of the constituent elements)
  • to protect tax revenue for HMRC (eg where a person selling a business charges VAT which is recovered by the purchaser but never declares the output tax to HMRC)

What are the TOGC conditions?

Several conditions need to be met in order for a transfer to be classed as an outside the scope TOGC for VAT purposes. Broadly, the main conditions include:

  • the new owner must be put in possession of a business that can be operated as such
  • the buyer intending to use the assets in carrying on the same kind of business as the seller
  • where the seller is a taxable person, the buyer must be a taxable person already or become one as the result of the transfer
  • where only part of a business is transferred it must be capable of separate operation
  • there can’t be a series of immediately consecutive transfers of the business

What are the main consequences of a TOGC?

The major consequence of a TOGC which meets the conditions outlined above is that the transfer is outside the scope of VAT. Technically, the transfer is deemed to be neither a supply of goods nor a supply of services, ie it is ‘de-supplied’ for VAT purposes. 

There are other consequences of a TOGC that are also worth noting, these include:

  • the buyer inheriting the business’s turnover for registration purposes
  • certain record keeping requirements
  • a potential self-supply charge for transfers into partly exempt groups
  • implications for VAT recovery of both the buyer and the seller 
  • the passing of capital goods scheme obligations to the buyer
  • the possible transfer of ‘person constructing status’ in relation to certain buildings

What happens when land and property forms part of the business being transferred?

Special provisions apply when transferring ‘standard-rated land’ as part of a TOGC which can result in these elements chargeable to VAT unless the buyer satisfies requirements around the option to tax. This might include land and buildings over which an option to tax has been exercised by the seller and ‘new’ commercial property (within 3 years of the date it was completed).

There can also be challenges when assessing whether tenanted property will be classed as a TOGC (ie whether the transfer is of a property rental business). 

What happens if the treatment is incorrect?

If VAT is incorrectly charged when the transfer should be outside the scope of VAT then HMRC may seek to deny the purchaser’s input tax recovery. However, if VAT is not charged on the sale of assets when it should be then HMRC may assess the seller for under declared output VAT. 

As a consequence, it’s important to assess carefully whether the TOGC conditions are met and for both parties to a transaction to agree this. Often contractual protections will be sought in case the treatment chosen turns out to be incorrect.

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