TOGC Tax: VAT Conditions, Property Option and Pitfalls

A sale qualifies under the TOGC VAT rules, and therefore falls outside the scope of VAT, when a business changes hands and the buyer carries on the same kind of trade using the assets transferred. No VAT is charged on the price. The treatment is set out in Article 5 of the Value Added Tax (Special Provisions) Order 1995, which says the transaction is neither a supply of goods nor a supply of services.¹ On a multi-million-pound acquisition, that removes a 20% upfront charge the buyer would otherwise pay and then have to reclaim from HMRC.

The Five Conditions That Must All Be Met

Every one of the following has to be satisfied. Fail on one and the sale becomes a standard taxable supply.

Same kind of business. The buyer must use the assets to carry on the same kind of trade as the seller. The activity does not need to be identical, but the buyer must end up with a functioning business rather than a bundle of assets. Someone who buys a restaurant and immediately converts the premises to offices is not continuing the same kind of business, and VAT at 20% applies.²³
Buyer must be a taxable person. Where the seller is VAT-registered, the buyer must already be registered or become registered immediately as a result of the transfer. The registration threshold is £90,000 of annual taxable turnover.⁴
No significant break in trading. The business has to remain a going concern. A brief pause for rebranding or minor refurbishment is generally acceptable; a complete cessation suggests the assets were sold individually.
Sold as a whole or as a separable part. The seller must transfer the whole business or a clearly identifiable part that can operate independently. Cherry-picked assets that cannot function as a standalone business do not qualify.¹
No series of immediately consecutive transfers of the same business.²

The condition that generates the most disputes in practice is the first one. HMRC looks at whether the buyer is genuinely continuing the seller’s trade, and the relevant intention is the one held at the point of transfer, not what happens six months later.

TOGC Treatment Is Mandatory, Not Elective

If the conditions are met, the sale is outside the scope of VAT automatically. You cannot decide to charge VAT anyway because it feels safer. HMRC’s guidance states plainly that the rules are compulsory and there is no opt-out.²

This cuts both ways. Charge VAT on a transaction that should have been a TOGC, and the buyer cannot reclaim it as input tax, because there was no taxable supply to attach input tax to. The seller then has to cancel the invoice, issue a credit note, and refund the money. If the sale contract does not deal with this scenario, the buyer may have no contractual right to recover the overpaid VAT from the seller.² Treat a standard sale as a TOGC when it is not, and the seller has under-declared output tax; HMRC can assess later with penalties and interest.

HMRC will not give a pre-transaction ruling on whether a specific deal qualifies. The published guidance is detailed, and parties are expected to apply it themselves.

Selling Only Part of a Business

You do not have to transfer an entire business. Article 5 covers partial transfers where the part being sold is capable of operating separately.¹ An internal support function that only served the rest of the business does not count. The assets must have been used to make supplies to external customers.

Where only part is transferred, the buyer looks at the turnover of that part alone to work out whether registration is required.² A seller with three divisions might sell one whose turnover sits well below £90,000, in which case the buyer would not automatically need to register for that part.

Commercial Property and the Option to Tax

Property is where TOGC deals most often come apart. When the seller has opted to tax the building, or is transferring the freehold of a new building less than three years old, the standard TOGC conditions are not enough on their own. Miss the property-specific steps and the property falls outside TOGC treatment and attracts VAT at 20%.

By the “relevant date” (normally the date of transfer, but potentially earlier if a deposit creates a tax point) the buyer must do two things:

Exercise their own option to tax the land or building and send written notification to HMRC. If posted, the notification must be properly addressed, prepaid, and posted on or before the relevant date.⁵
Notify the seller in writing that the buyer’s option to tax will not be disapplied under the anti-avoidance rules in Schedule 10, paragraph 12 of the VAT Act 1994.²

Fail to do either by the deadline, and the property drops out of TOGC treatment entirely.² The statutory framework for the option itself is in Schedule 10 of the VAT Act 1994, which also requires notification to HMRC within 30 days of exercising the option.⁶

The anti-avoidance disapplication is worth flagging early in any deal that involves a connected tenant making mostly exempt supplies. Where that pattern is present in a property above £250,000 in value, the buyer’s option can be disapplied and the property loses TOGC treatment even though the buyer went through the motions of opting.

Keeping the Seller’s VAT Number or Getting a New One

After completion, the buyer chooses between applying for a fresh VAT registration and taking over the seller’s existing number. Each route has consequences.

Transferring the Seller’s Registration

To keep the seller’s VAT number, both parties complete Form VAT 68 alongside the buyer’s registration application.⁷ Both buyer and seller sign it, and it should be submitted as soon as the business transfers, before the seller asks HMRC to cancel their registration.⁸ The form can be submitted by email or post.

Keeping the number is convenient for customers and suppliers who already have it on file. The trade-off: the buyer inherits responsibility for any outstanding VAT liabilities attached to that registration. Many buyers take a new number for exactly that reason.

Applying for a New Number

A buyer taking a fresh registration must wait for HMRC to issue the number before issuing any VAT invoices. In the interim, keep detailed records of every transaction so the first post-transfer return is accurate. Collecting VAT under an old or invalid number causes compliance problems that are hard to unwind.

Either way, the seller files a final VAT return covering trading up to the date of transfer. Once that is processed and any balance settled, the seller’s registration for that business is cancelled or amended.

Who Keeps the Records

Section 49 of the VAT Act 1994 allows the seller’s duty to preserve business records to shift to the buyer after a transfer.⁹ Where the VAT number transfers on Form VAT 68, the records typically follow.

VAT records must generally be kept for at least six years.¹⁰ For the buyer, that means taking on the seller’s VAT accounts, sales invoices, and purchase ledgers going back that far. Verify the completeness of what you receive before completion. Gaps in historical records cause problems if HMRC audits the pre-transfer period, and the responsibility now sits with the new owner. Treat incomplete records as a due diligence issue rather than something to sort out afterwards.

Mistakes That Break TOGC Treatment

Charging VAT “to be safe.” This is the most expensive mistake in the area. The buyer cannot reclaim VAT that should never have been charged, because no taxable supply occurred. Recovery then depends on the seller issuing a credit note and reclaiming the output tax from HMRC.²
Missing the property notification deadline. The buyer’s option to tax must be notified to HMRC by the relevant date. A day late means standard-rated. Deposits that create earlier tax points can pull the relevant date forward.
Forgetting the written notice to the seller. Even when the buyer has opted to tax, they must separately confirm to the seller in writing that the anti-avoidance disapplication in Schedule 10, paragraph 12 does not apply. Skipping this note is enough on its own to knock the property out of TOGC treatment.⁵
Buyer not continuing the same kind of business. Straightforward in theory, messier where the buyer plans gradual change. The test is what the buyer intends at the point of transfer.

Incorrect treatment in either direction exposes the parties to corrective action from HMRC, including penalties and interest on top of the tax.² Once a deal closes with the wrong VAT position, unwinding it involves credit notes, amended returns, and negotiation between buyer and seller that can drag on for months. Getting the analysis right before completion is the only reliable protection.

1
Legislation.gov.uk. The Value Added Tax (Special Provisions) Order 1995
2
GOV.UK. Transfer a Business as a Going Concern (VAT Notice 700/9)
3
GOV.UK. VAT Rates
4
GOV.UK. Increasing the VAT Registration Threshold
5
GOV.UK. Opting to Tax Land and Buildings (VAT Notice 742A)
6
Legislation.gov.uk. Value Added Tax Act 1994 – Schedule 10
7
GOV.UK. Register for VAT – Transfer Your VAT Registration
8
GOV.UK. Request Transfer of a VAT Registration Number
9
Legislation.gov.uk. Value Added Tax Act 1994 – Section 49
10
GOV.UK. Record Keeping (VAT Notice 700/21)