A transfer of a going concern (TOGC) is a VAT free transaction providing certain criteria are met. The main criterion being that the seller and buyer are both VAT registered at the time of completion.
To date, HMRC have accepted the buyer is registered if the VAT application form has been submitted, but a VAT number is yet to be granted. Currently this situation is being reviewed. There is speculation that new guidelines will insist that buyers hold a VAT number on the day of completion.
If a buyer does not confirm VAT registration prior to the completion date, the seller can potentially add 20% to the value of the deal. This can also increase Stamp Duty Land Tax if a property is involved.
If you are considering the purchase or sale of a business you need to be aware of the potential consequences of not having your VAT registration in place at the time of completion. Whilst the contract may expect the TOGC criteria to be met, the actual position may be different. This can then result in a VAT charge being due on the seller with possible penalties and interest to pay. It may be necessary to ensure VAT registration is in place prior to completion.
If you have any questions about this please contact Liz Hill
or Rob Geary
who will be happy to help you.