VAT treatment of a distressed asset purchase
Get TOGC right and there's no VAT on the sale. Get it wrong and 20% of the consideration goes to HMRC on completion day. This is the UK VAT playbook for a distressed asset buy.
s.49 VATA 1994 — outside the scope of VAT if conditions met.
Buyer must be VAT-registered or liable to register from day one (April 2024).
Buyer must opt to tax before completion if seller has already opted.
TOGC checklist
- Assets transferred are used in a business (not investment).
- Buyer continues the same kind of business.
- No significant break in trade between completion and buyer trading.
- Buyer is VAT-registered at completion, or liable to register from completion.
- If property is included, both parties have opted to tax (VAT1614A filed).
- SPA states TOGC intent and price is stated exclusive of VAT.
Related
Frequently asked questions
What is a TOGC?
Transfer of a Going Concern. Under Article 5 VAT (Special Provisions) Order 1995 and s.49 VATA 1994, a qualifying transfer is NOT a supply for VAT — no VAT charged. Requires: (a) transfer of assets used in a business, (b) buyer uses them for the same kind of business, (c) buyer is VAT-registered (or will be), (d) no significant break in trade.
Does a sale from administration qualify as TOGC?
Yes if the conditions are met. HMRC Notice 700/9 confirms administrators can sell as TOGC. The buyer must be VAT-registered at completion (not merely applied for) OR meet the £90k threshold from day one.
What's the £90k trap?
From April 2024, the compulsory VAT registration threshold is £90k rolling 12 months. For TOGC, HMRC requires the buyer to be registered OR liable to register at completion — a buyer under threshold with intent to trade below it CANNOT use TOGC.
What happens if TOGC fails?
VAT at 20% is chargeable on the sale price. The administrator invoices, remits to HMRC. The buyer reclaims via input VAT on the next return — if registered. Cashflow impact: £2m deal = £400k VAT out on completion day, £400k back 1–3 months later.
Does TOGC cover the property?
Only if the buyer opts to tax the property before completion AND the seller has already opted. VAT (Special Provisions) Order 1995 Art 5(2A) — the buyer's option must be effective from the transfer date and notified to HMRC in the same month.
What is 'option to tax' on property?
A seller's election under Sch 10 VATA 1994 to charge VAT on rents/sale of otherwise-exempt commercial property, in return for reclaiming input VAT on refurbishment. If the target's premises are opted, the buyer must opt (VAT1614A) before completion.
VAT on goodwill?
Goodwill sold separately from a going-concern transfer attracts 20% VAT. Inside a TOGC — no VAT. This is why the SPA schedule matters: allocate consideration correctly.
What about VAT on stock?
Stock is part of TOGC and no VAT applies. If TOGC fails, VAT at 20% on the stock allocation. Zero-rated stock (food, children's clothing, books) still zero-rated.
Do I need HMRC clearance for TOGC?
Not required, but HMRC clearance is available under the VAT Non-Statutory Clearance Service. Recommended on deals > £500k — takes 30–45 days. Without clearance, HMRC can challenge later; interest and penalties apply from completion.
What about the target's outstanding VAT?
The old company's VAT liabilities stay with the old company (unsecured claim in the administration). Do NOT take on the VAT number — you apply for your own. Never accept transfer of VAT registration in a distressed deal.