On 11 August 2017, the First-tier Tribunal9 held that the purchaser of a business treated as a transfer of a going concern (TOGC) could claim input tax deductions related to the transferred business despite the fact that the seller’s VAT registration was not transferred to the purchaser.
An election for the purchaser to acquire the seller’s existing VAT registration on a TOGC is uncommon as the effect is that both VAT liabilities and entitlements to input tax credits transfer to the purchaser.
In this case the parties to the TOGC included contractual provisions in the business transfer agreement such that:
• pre-sale tax liabilities of the seller were excluded from the sale; but
• the benefit and burden all of the seller’s business contracts were included in the sale
The Tribunal held that the obligation to pay the VAT element on invoices pursuant to supplier contracts, which passed to the purchaser, were not tax liabilities (and were not therefore excluded from the sale). Absent the sale, the seller would have been entitled to claim the input tax deductions. Accordingly, in the Tribunal’s view, the purchaser was entitled to claim the input tax following the TOGC.
The Tribunal noted that HMRC had not pleaded that the sale was a ‘sham’ nor susceptible to Halifax or Ramsey arguments. As a result the Tribunal decided it could not give a view as to the purpose of the sale (in particular whether it amounted to a normal commercial transaction or, instead, a means of “isolating” the input tax from the VAT liabilities).
The decision can be viewed here.