In The General Distribution Storage Ltd [2019] TC 07352, the Tribunal discussed the application of the VAT relief available to a qualifying "transfer of a business as a going concern" (TOGC relief) in respect of a series of immediately consecutive transfers.
Where applicable, TOGC relief treats a qualifying sale of a qualifying business as neither a supply of goods nor services, meaning that no VAT is levied on the sale. It is helpful to buyers from a cash flow perspective. Where the sale involves land, the relief also provides an SDLT saving, as SDLT is otherwise charged on the consideration plus any VAT – so where no VAT is levied, SDLT is also not levied on what would have been the VAT element.
One of the conditions for the relief requires there to be an ongoing business, or part of a business capable of separate operation, and the assets transferred must be used by the buyer in the same kind of business.
In this case, the seller sold a tenanted property to a buyer, who shortly after agreed to sell the property to another buyer. The first buyer paid the consideration price plus VAT to the seller, expecting to recover such cost as input VAT. However, the seller did not pass on the VAT received to HMRC and when challenged, sought to argue that TOGC relief applied (in which case the first buyer would not have been able to recover input VAT). The second buyer also paid the consideration price plus VAT, on the assumption that TOGC treatment did not apply.
The seller argued that TOGC relief applied because it and the first buyer were both involved in the same property investment business (buying and selling tenanted property). The Tribunal disagreed on the basis that they were different businesses – the seller rented out property, and the buyer could not have intended to carry on a property letting business as it immediately sold the freehold. VAT was therefore payable.