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HM Revenue and Customs Brief 11/16 - VAT and the transfer of a going concern


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Published 24 June 2016 

Purpose of this Brief:

a) This brief sets out the HM Revenue and Customs (HMRC) position following the judgment of the Upper Tribunal in the case of Intelligent Managed Services Limited (IMSL). The case concerned the transfer of a business into a VAT group.

b) The brief also clarifies the situation where a business is transferred to a person without an establishment in the UK.


  • taxable persons transferring all or part of their business into a VAT group
  • members of VAT groups acquiring or disposing of businesses
  • those involved in the transfer of a business to a person not established in the UK

1. VAT and the transfer of a going concern: VAT Groups and the Intelligent Managed Services Limited judgment


Generally the supply of the assets of a business is taxable at the standard rate of VAT. However, subject to certain conditions, the supply of the assets of a business is treated as neither a supply of goods nor a supply of services when these are transferred together with all, or part, of that business as a going concern (article 5, VAT (Special Provisions) Order 1995). At the time of the transfer the transferee must intend to use the assets as a continuation of the business activity of the transferor.

Corporate bodies which share a common control may choose to register as a VAT group. The supply of goods or services between members of a VAT group is ignored for VAT purposes (section 43(1), Value Added Tax Act 1994). All onward supplies made by the VAT group are treated as made by the representative member.

HMRC’s policy has been that where a member of a VAT group acquires a business, and thereafter the only supplies are made to other members of that VAT group, the acquisition can’t be treated as the transfer of a business as a going concern for the purposes of article 5, VAT (Special Provisions) Order 1995 (TOGC). This is because with all subsequent supplies treated as made to and by the same person, the transferor’s business ceases at the point of transfer. Consequently the supply of the assets of the business by the transferor to the transferee is subject to VAT.

In the case of Intelligent Managed Services Limited ([2015] UKUT 0341 (TCC)), IMSL had been developing a banking platform. It sold this part of its business to Virgin Money Management Services Limited (VMMSL). VMMSL continued to develop the software and then supplied software services to Virgin Money Bank Limited (VMBL). VMBL used these services to supply retail banking to its customers. VMMSL and VMBL were at the time members of the Virgin Money Group VAT group (VMG). HMRC considered that the supply of the assets of IMSL’s business to VMMSL was subject to VAT because that business ceased at the point of transfer.

The Upper Tribunal disagreed with this conclusion, saying that the transfer of IMSL’s banking support services business to VMMSL was the transfer of a business as a going concern (TOGC).

The Upper Tribunal considered that while VAT grouping treats the representative member as carrying on the business of each member of that group, it doesn’t change the nature of the businesses carried on by the individual members whose activities remain separate as a matter of fact. Looked at objectively, VMMSL hadn’t intended to liquidate the transferred assets but rather to carry on the same kind of business as IMSL as part of its own banking support services. Consequently, in its judgment, there’s nothing in the VAT group rules that could prevent the transfer of IMSL’s business to VMMSL from being a TOGC.

Implications of the Upper Tribunal decision

HMRC now accepts that if a business is transferred to a company in a VAT group and both:

  • that company intends to continue to use the transferred assets to operate the same kind of business in providing services to other group members
  • those other group members use the services to make supplies outside of the group

then the transfer is a TOGC at the first stage.

Transfers of a going concern from a VAT group

HMRC has also revised its policy relating to transfers out of a VAT group. Where, were it not for the VAT grouping rules, a business exists, the normal TOGC rules apply to transfers out of a VAT group. This supersedes guidance in section 4.3 of Public Notice 700/9, which will be amended in due course.

Self-supply of assets

A VAT group that can’t recover all the VAT it incurs on its purchases must, in certain circumstances, account for output tax on assets coming into the group via a TOGC (self-supply charge and Capital Goods Scheme (CGS)). For information on VAT groups, self-supply and CGS, please refer to VAT Notices 700/9: Transfer of business as a going concern, section 5 and 706/2: Capital Goods Scheme.

Stamp Duty Land Tax

There may be situations where a past overpayment of VAT resulted in an overpayment of Stamp Duty Land Tax (SDLT), because SDLT was assessed on a value that incorrectly included VAT.

If a business believes that it has overpaid SDLT, it may make a claim for overpayment relief. The legislation relating to such claims is at schedule 10, paragraph 34, FA 2003.

The criteria that must be met and the exclusions from claims are set out at paragraph 34A of Schedule 10. Guidance can be found in the Stamp Duty Land Tax Manual (SDLTM) at SDLTM52500 and 54000.

Case G (liability calculated in accordance with practice generally prevailing - SDLTM54170) will not apply, and will therefore not exclude a claim where the amount of the chargeable consideration has been reduced as a result of the seller refunding the VAT.

Claims must be made within 4 years of the date of transaction. HMRC will be unable to accept any refund requests for transactions that took place more than 4 years before the date of claim. HMRC will also not refund SDLT unless the overpaid VAT has also been refunded.

2. VAT and the transfer of a going concern: Non-established persons

This brief explains HMRC’s policy in relation to transfers of a going concern where a non-established person acquires a business, or part of a business, and the person is not already a taxable person at the time of the transaction, ie they have not registered for VAT by the time of the sale.

A person is a taxable person if they are registered for VAT in the UK or they are liable to be registered in the UK.

A non-established person is any person who is not normally resident in the UK, who does not have a UK establishment and, in the case of a company, is not incorporated there.

There are different rules for determining whether a non-established person is liable to register for VAT than there are for a person established in the UK. These are set out in Notice 700/1 Should I be registered for VAT?

It is a condition of treating a transaction as a TOGC that where the seller is a taxable person the buyer must also be, or immediately become as a result of the transfer, a taxable person. It is therefore important for the seller to know the registration status of the buyer so the correct tax treatment can be applied.

The UK has a compulsory VAT registration threshold for persons established in the UK.

Where the buyer of a business, or part of a business, is not already a taxable person then for the purposes of determining the value of their taxable supplies they must treat as their own the taxable supplies made by the seller prior to the purchase.

This is known as the ‘backward look’ and has the effect that VAT registration cannot be avoided by transferring a business each time its taxable turnover approaches the VAT registration threshold. It also provides a degree of certainty for the parties involved in the transfer with respect to taxable person status at the time of the transaction.

There is no VAT registration threshold for non-established persons, who must register for VAT in the UK either immediately they make any taxable supply there or if they expect to do so in the following 30 days. As there is no registration threshold there is no need for a ‘backward look’.

In these circumstances the seller may have less certainty over whether the buyer will become a taxable person following the transfer.

Example: It may be the intention of a non-established and non-taxable person to immediately suspend the newly acquired business for a period of six weeks while the business premises are refitted. There being no taxable supplies made or expected to be made within a thirty day period following the transfer, the buyer would not be liable to be a taxable person under the terms of the non-established person legislation and the transaction cannot be a TOGC.

Where it is known that a non-established buyer will not be making taxable supplies at the point of transfer and does not intend to do so within the 30 day period, the non-established person has the option to voluntarily register for VAT. If the seller is a taxable person he must do so before the transaction for the TOGC condition to be met. It is HMRC’s opinion that a voluntary registration must be in place at the time of the transaction for the TOGC rules to apply.

Taxable supplies which span the date of the transfer of the business

Although there is no backward look for the non-established person, in cases where a supply by the seller spans the date of the transfer HMRC accept that these become supplies made by the buyer immediately following the transfer. So, for example, where a tenancy agreement has effect at the time of the transfer the non-established person will have made a supply which, assuming an option to tax is in place, will be taxable and liability to register for VAT follows. In these circumstances it would not matter that a consideration had not at that point been received and was not perhaps expected within 30 days of the transfer. When the consideration becomes payable and the fact that it may be discounted by reference to a rent holiday has no impact.

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© Crown Copyright 2016.

A licence is needed to reproduce this article and has been republished for educational / informational purposes only. Article reproduced by permission of HM Revenue & Customs.

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Article Published/Sorted/Amended on Scopulus 2016-06-25 00:00:00 in Tax Articles

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