When the assets of a business (or part of a business) are transferred as a going concern (“TOGC”), and provided certain conditions are met, no supply of those assets takes place for VAT purposes. One of the conditions is that the buyer must intend to use the assets to carry on the same kind of business as the seller.
This intention can be relevant where:
- An occupier sells a business including the trading premises;
- A landlord sells a property subject to tenancies; or
- In some cases, where a developer sells a development that is currently in progress.
If the seller is a tenant, an outright disposal of his property interest might take the form either of an assignment of the lease, or a surrender of the lease. In an assignment, the buyer simply becomes the new tenant under the lease and HMRC accept that, if the other conditions are met, the assignment of a lease with the benefit of a sublease could be a TOGC.
In a surrender however, the buyer is the landlord and the lease will normally merge with the landlord’s existing interest in the land and will cease to exist. HMRC have historically taken the view that, where this happens, the transaction could not be a TOGC because the landlord would not use the same asset, the lease, in carrying on the business. This policy has now changed following the decision in Robinson Family Limited  UK FTT360 (TC), TC02046.
The policy changes also extend to the grant of leases as well as to any surrenders, provided the other conditions are met and HMRC’s Manuals at VTOGC6450 will be amended shortly to reflect this.
There may well be cases that in the past, businesses did not regard a surrender of a lease as constituting a TOGC and may now be able to do so, subject to the normal time limits. In such circumstances, VAT may have been charged where it need not have been. Alternatively, input tax may have been restricted because the surrender was treated as an exempt supply.
If you believe you may have been overcharged VAT on the surrender of a lease and you would us to review the position for you, please contact Andy Branson at firstname.lastname@example.org.
As Stamp Duty Land Tax (“SDLT”) is charged on the gross sales price, SDLT calculations may well also be incorrect.
If a business believes that if it has overpaid SDLT, it may make a claim for overpayment relief although claims must be made within four years of the date of the transaction. HMRC have already confirmed that it will not refund SDLT unless the overpaid VAT has also been refunded.