Where you acquire a business which is a “going concern”, if you aren’t registered for VAT you might be required to do so. This rule can apply to business assets bought in isolation, e.g. business premises. How can you check if the going concern rules apply?


The VAT treatment of a transfer of going concern (TOGC) is often misunderstood. The TOGC rules apply to a sale of all or part of a business (as long as the part sold is capable of operating as a business in its own right), where the purchaser carries on a similar, but not necessarily identical, trade and there’s no significant break in trading. A TOGC is outside the scope of VAT, so none is chargeable on the sale of the business. Importantly, TOGC treatment isn’t optional, so the seller isn’t allowed to charge VAT just to be on the safe side.

Other consequences

Where there’s a TOGC and the seller is registered or required to be registered, the purchaser is treated as if they were in the same position. There are also special rules where the transfer involves a property, the supply of which, i.e. sale or lease/rent, is liable to VAT.

A takeaway takeover

Against this background, Deezer Ltd (D) (nothing to do with streaming music) was granted a lease by the freeholder over a property which had been used by the previous occupant to run a restaurant trading as the Bell Rock fish and chip shop. The lease was granted on 10 July 2015 and thereafter D also operated a fish and chip business.

HMRC’s argument

HMRC’s view was that D had taken over a going concern and so the TOGC rules applied. The previous occupant was required to be registered and, because it was a TOGC, D stood in its position and so was liable to register for VAT from its first day of trading, i.e. 10 July 2015.

Taxpayer’s argument

D’s counter argument was that it hadn’t taken over a business. Instead it had simply acquired the lease on the property. It had not struck any deal with the owners of the business which previously ran the fish and chip restaurant. Therefore, based on D’s turnover it wasn’t liable to become registered until 1 October 2015.

The decision

Because D used the same name, premises and consequently the goodwill of the previous business, as well as its equipment, HMRC was right to say that there had been a TOGC. Therefore, D was liable to be registered from the date it started to run the new business. As a result, D was liable for the VAT on sales from 10 July 2015 and a late registration penalty of up to 15% of that amount.

Trap. If you occupy a property that was used by a trader who was registered, or required to be, and the conditions for a TOGC are met, you must register immediately even where you haven’t directly acquired any assets from the previous owner. If you’re already registered it will extend to the new business with immediate effect.

Tip. If you take over a premises from which a similar business recently traded, check if the TOGC conditions are met. If you’re unsure, write to HMRC with the facts and your view and ask it to confirm.

This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit www.indicator-flm.co.uk or call 01233 653500.