Going concern concerns
If you buy a business as a going concern, there’s no VAT to pay. But if the business includes – or is – a building which the vendor has opted to tax, the purchaser has to jump through some extra hoops to secure VAT-free status. In a recent case, the solicitors acting for both sides had put in their letters that the parties should ‘use their best efforts’ to make the transaction VAT-free, but no-one stopped to explain what that meant to the buyers. So they didn’t do what they should have done – opted to tax and told HMRC before the purchase was complete – and when HMRC picked up on it a couple of years later, there was a mess.
HMRC can get this wrong as well. A property development company (RFL) had a lease from the Belfast Harbour Commissioners that RFL couldn’t assign – but it could grant a sub-lease. RFL found a tenant, and decided to transfer the right to rental income to another company – by granting a sub-lease 3 days shorter than the head-lease, which RFL had to retain. HMRC argued that this couldn’t be a transfer of a going concern, because RFL had created a new legal title rather than disposing of what it owned. The Tribunal didn’t agree: the substance of the transaction was a full transfer of the economic rights, and what had been retained was incidental. No VAT was due.
Property transactions and transfers of businesses are fraught with dangers in relation to VAT as well as other taxes. We’ll be happy to help you pick your way through them.