Transfer of a Going Concern (TOGC)

Under VAT regulations, the disposal of a business by a registered trader to another VAT-registered trader, on which VAT is not charged. However, new measures were introduced in the 2004 Budget to counter VAT-avoidance schemes utilizing the rules on TOGC. HM Revenue and Customs (HMRC) is responsible for applying these rules.
On this page

Definition

Transfer of a Going Concern (TOGC)

Under Value Added Tax (VAT) regulations, the transfer of a going concern (TOGC) refers to the sale of a business from one VAT-registered trader to another, where VAT is not applicable. The primary benefit is that the transfer is treated as neither a supply of goods nor a supply of services, thus avoiding the immediate VAT cost. This can facilitate smoother transactions and avoid negative cash flow impacts associated with VAT payments.

Examples

  1. Restaurant Sale: A VAT-registered restaurant owner sells their business, including all assets, leases, and ongoing contracts, to another VAT-registered individual. Under TOGC rules, VAT is not charged on the sale price.
  2. Retail Store Transfer: A retail store in a shopping mall, operated by a VAT-registered trader, is sold to another VAT-registered entity. The TOGC rules apply, allowing the transaction to proceed without applying VAT, provided the business continues in the same manner.
  3. Franchise Sale: A franchise business, owned and operated by a VAT-registered trader, is sold to another franchisee who is also VAT-registered. The sale qualifies as a TOGC, meaning VAT does not need to be charged on the transaction.

Frequently Asked Questions (FAQs)

Q1: What conditions must be met for a sale to qualify as a TOGC? A1: The business must continue to be a going concern, both parties must be VAT registered, the buyer must intend to operate the business with the same goods and services, and there must be no significant break in trading.

Q2: Can a property transfer be considered a TOGC? A2: Yes, if the property is part of a business being sold as a going concern, and the conditions for TOGC are met, the transfer can qualify.

Q3: What does HMRC look for when determining if a transfer qualifies as a TOGC? A3: HMRC ensures that the transfer complies with TOGC rules, including the continued operation of the same kind of business, keeping the same premises, and ensuring both parties are VAT registered.

Q4: Is it mandatory to inform HMRC about a TOGC? A4: While not always mandatory, informing HMRC can help ensure the transaction is appropriately documented and may prevent future disputes over VAT liabilities.

  • Value Added Tax (VAT): A consumption tax levied on the value added to goods and services at each stage of production or distribution.
  • Registered Trader: An individual or business entity that has registered with HMRC for VAT purposes and is authorized to charge VAT on their taxable supplies.
  • VAT-Avoidance Schemes: Legal methods used to minimize VAT liabilities, which are often scrutinized and regulated by HMRC to prevent abuse.

Online References

Suggested Books for Further Studies

  • “Value Added Tax: Commentary and Analysis” by Peter M Clarke and Josh Adair
  • “VAT and Small Businesses” by Malcolm Greenbaum
  • “Practical VAT” by Gordon Catchpole

— ## Accounting Basics: “Transfer of a Going Concern” Fundamentals Quiz

Loading quiz…

Thank you for embarking on this journey through our comprehensive accounting lexicon and tackling our challenging sample quiz questions. Keep striving for excellence in your financial knowledge!

Transfer Payment
Transfer Development Rights (TDR)