Tag Archives: Transfer of Business as a Going Concern Relief

Business transfer a TOGC despite Group’s exclusive call on transferee

In order to be a transfer of a business as a going concern (“TOGC”) so as to be relieved from VAT the assets transferred must together constitute an undertaking capable of carrying on an independent economic activity. This is quite different from a mere transfer of assets.

In the Upper Tribunal Tax and Chancery Chamber case of Intelligent Managed Services Limited – v- HMRC [2015], HMRC claimed that the transfer of Intelligent Managed Services Limited (“IMSL”)’s banking support services business, comprising business assets and staff, to Virgin Money Management Services Limited (“VMMSL”), was not a “transfer of a going concern”, so that the transfer constituted supplies of goods and services that VAT should be charged on.

VMMSL were a member of the Virgin Money Group (“VMG”) VAT group.

At the time of transfer to VMMSL IMSL’s business was the business of owning, maintaining,
operating, using, developing and supporting an information technology infrastructure and know how for use by others in banking support. IMSL had developed a banking platform (“banking engine”) for banking processing services for banks.

Following the transfer of the business, VMMSL carried on the same type of business providing banking processing services to another member of the VMG VAT group, Virgin Money Bank Limited (“VMBL”), which provided retail banking services to retail customers. The processing services provided by VMMSL were added into the retail banking services offered by VMBL, which comprised retail banking products, accounts and payment processing services, for which the banking engine was essential. VMMSL only provided services to group companies.

The question was whether the fiction created by the VAT group rules, i.e. that of the single taxable person carrying on that business, in combination with the other businesses of the group, meant that the VMG VAT group was not to be treated as using the assets transferred in carrying on the same kind of business as required of any business successor by the TOGC rules.

The tribunal said that the mere fact that the business transferred was to be carried on, not as a stand-alone business, but as part of the existing business of the group could not make a difference. That was clear from the terms of Article 5(1)(a)(i) of the Value Added Tax (Special Provisions) Order 1995 (“SPO”) itself.

By virtue of the single taxable person fiction, as applied by Section 43(1) Value Added Tax Act 1994 (“VATA”), the group was to be treated as carrying on all the businesses carried on by group companies.

But that fiction did not change the nature of those businesses. They remained separate businesses as a matter of fact.

The fiction did not extend to treating the group as carrying on a different, amalgamated, business in which the separate businesses of the group lost their individual identity.

This was the case whether or not those individual businesses themselves made supplies outside the group. The treatment of such supplies was dealt with separately by Section 43(1)(b) of VATA.

Nor could the position be affected by the fact that Section 43(1) of VATA caused VMMSL’s supplies within the group to be disregarded. Although the VAT effects of those supplies were to be disregarded, the activities of VMMSL and the intra-group transactions it made were not.

The effect of VMMSL being within the VMG VAT group was that it was the group, as the single taxable person, that was treated as the transferee, and it was the group that was treated as carrying on each of the businesses of the group members, but none of the statutory disregards could alter the fact that the group, in combination with its other businesses, continued to use the assets transferred in the same kind of business as that formerly carried on by IMSL.

Accordingly, the transfer by IMSL of the assets of its business to VMMSL satisfied the conditions of Article 5(1) of the SPO, and those supplies were therefore to be treated as neither a supply of goods nor a supply of services and relieved from VAT under the VAT TOGC rules.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

VAT Election notified too late to get TOGC Relief

The condition in Article 5(2A)(a) of the VAT (Special Provisions) Order 1995 requires not only that an option to tax has been exercised by the transferee on or before the relevant date but also that notification of that option has been given to HMRC on or before the relevant date. There is no provision to extend the time for that notification.

Where notification is given within the appropriate time limit the option may take effect from the date on which it was exercised. To that extent, and only to that extent, can the notification operate retrospectively.

In the First-tier Tribunal (Tax Chamber) case of Nora Harris v HMRC (2015) Mrs Harris was the Landlady of a Hairdressing Salon. She had opted to charge VAT on the rent. On 1 August 2011 she sold the building to her daughter.

Her daughter had got herself VAT registered in time so had her daughter opted to charge VAT on the property and notified the election to HMRC by 1 August 2011 the sale would have been treated as VAT neutral under the Transfer as a Going Concern VAT relief rules.

Unfortunately she had done neither and her efforts to notify a late election to HMRC were totally undermined because the tribunal ruled that the requirement to notify her VAT election to HMRC before the completion of her purchase was mandatory and that her failure to do so was fatal to the validity of her VAT election and would have been so even if her actual election had been made before completion of the purchase from her Mother.

In fact Mrs Harris’ daughter knew nothing about the relevant VAT rules and even her election to charge VAT was merely inferred from the fact that she charged VAT to the tenant after buying ownership of the freehold from her Mother.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.