Revenue and Customs Brief 11 (2016) sets out HMRC’s position following the judgment of the Upper Tribunal in the case of Intelligent Managed Services Limited.

Generally the supply of the assets of a business is taxable at the standard rate of VAT (20% currently). However, subject to certain conditions, the supply of the assets of a business is treated as neither a supply of goods nor a supply of services when these are transferred together with all, or part, of that business as a going concern (article 5, VAT (Special Provisions) Order 1995). At the time of the transfer the transferee must intend to use the assets as a continuation of the business activity of the transferor.

Corporate bodies which share common control may choose to register as a VAT group. The supply of goods or services between members of such a VAT group is ignored for VAT purposes (section 43(1), Value Added Tax Act 1994). All onward supplies made by the VAT group are treated as made by the representative member.

HMRC’s policy has been that where a member of a VAT group acquires a business, and thereafter the only supplies are made to other members of that VAT group, the acquisition can’t be treated as the transfer of a going concern (TOGC). This was on the basis that all subsequent supplies are treated as made to and by the same person and thus it was HMRC’s view that the transferor’s business ceases at the point of transfer. Consequently the supply of the assets of the business by the transferor to the transferee is subject to VAT.

The Upper Tribunal decision in Intelligent Managed Services Limited ([2015] UKUT 0341 (TCC)) disagreed with HMRC saying that in such situations there could be a transfer of a business as a going concern.

HMRC now accepts that if a business is transferred to a company in a VAT group and both:

• that company intends to continue to use the transferred assets to operate the same kind of business in providing services to other group members; and
• those other group members use the services to make supplies outside of the group

then the transfer is a TOGC at the first stage.

As a result of this change, there may be situations where a past overpayment of VAT resulted in an overpayment of stamp duty land tax (SDLT), because SDLT was assessed on a value that incorrectly included VAT. If a business believes that it has overpaid SDLT, it may make a claim for overpayment relief.

HMRC has also revised its policy relating to transfers out of a VAT group, self-supply of assets and transfers of a going concern where a non-established person acquires a business, or part of a business and the person is not already a taxable person at the time of the transaction.

The brief contains more information on all of the above.