A transfer of a going concern for VAT purposes is not defined. Widgery J gave some guidance in Kenmir v Frizzell and Others :
“In deciding whether a transaction amounted to the transfer of a business regard must be had to its substance rather than its form, and consideration must be given to the whole of the circumstances, weighing the factors which point in one direction against those which point in another. In the end the vital consideration is whether the effect of the transaction was to put the transferee in the possession of a going concern the activities of which he could carry on without interruption. Many factors may be relevant to this decision though few will be conclusive in themselves.”
The level of identity between the transferor and the transferee’s workforce is “a strong indicator towards there having been a transfer of a business irrespective of whether there had been any formal agreement to transfer them” (Judge Raghavan in HQ Graphics Limited v The Commissioners for Her Majesty’s Revenue & Customs ).
In the First-tier Tribunal (Tax) Chamber case of Amor Interiors Ltd v Revenue & Customs , Old Mill Furniture Limited operated an upholstery and interior design business. It made a series of 16 sales/transfers of assets to Amor Interiors Limited, which operated a very similar business, between 15 March 2011 and 30 May 2011. Each transfer was covered by a separate consecutive invoice.
Amor Interiors Limited were able to use the same premises and staff available as Old Mill Furniture Limited had used. They had experience of Old Mill Furniture Limited’s identical business.
Old Mill Furniture Limited had financial difficulties at the time of the transactions. It was claimed that they were made to provide Old Mill Furniture Limited with cash flow so that it could continue trading.
A liquidator was appointed to Old Mill Furniture Limited in October 2011.
It was claimed that Old Mill Furniture Limited had continued to trade after the 16 transfers to Amor Interiors Limited but no further evidence was produced of Old Mill Furniture Limited’s continued business or of how it could have traded without the assets it had transferred to Amor Interiors Limited.
HM Revenue and Customs (“HMRC”) disallowed Amor Interiors Limited’s claim for £13,676.32 input tax on its VAT return. HMRC said the input tax related to a series of transactions that HMRC regarded as the transfer of a going concern (“TOGC”).
Amor Interiors Limited contended that the assets were sold in the normal course of Old Mill Furniture Limited’s business and that it did not acquire the whole or any part of Old Mill Furniture Limited’s business as a going concern.
Amor Interiors Limited claimed there had not been a TOGC because Old Mill Furniture Limited intended to continue to trade until it was put into liquidation. But if Old Mill Furniture Limited had continued its business why apparently had no further VAT invoices been raised?
Taking a broad view the Tribunal could not find a credible explanation of how Old Mill Furniture Limited’s upholstery and interior design business could have continued after the transfers, given both the loss of the five employees and the transfer of “all” stock, fixtures and fittings, electrical tools, machines and desks listed on the invoices.
Even if Old Mill Furniture Limited had intended to continue to trade, sufficient assets and staff had been acquired by Amor Interiors Limited to enable it to use them to carry on the same kind of business following the transfers so there had been the transfer of part of its business rather than of the entire business.
Whether you regarded the transfers as a transfer of the whole business or a transfer of part of it, and whatever Old Mill Furniture Limited’s then intention to continue to trade, the conditions in Article 5(1) (b) of the Value Added Tax (Special Provisions) Order 1995 had been met, so that, taken as a whole, the transfers were not supplies of goods or services, and were outside the scope of VAT.
HMRC’s decision to disallow the input tax claim was upheld.
This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.