TOGC Rules and VAT – HSM Law Ltd v Revenue & Customs2

The First-tier Tribunal (FTT) has allowed the taxpayer’s appeal against HMRC’s decision to disallow a VAT repayment of £34,185 in the context of a transfer of various assets from an insolvent law firm. 


After efforts to save a failing law firm were unsuccessful, the firm’s partners decided to join  new firms and take with them their employees and clients. Separately, under agreements  dated 14 and 20 December 2011, all of the failed law firm’s book debts, work-in-progress, confidential information, equipment, goodwill, records, name, and intellectual property rights  (amongst other things) were transferred to the taxpayer, HSM Law Limited. The agreement of  14 December specifically noted in its recitals that the taxpayer “does not intend and will not be  in a position to carry on the Business after the Completion date but intends to realise the Assets  and assist in the orderly cessation of the Business [the failed law firm]”.

The taxpayer subsequently claimed £40,000 of input VAT in relation to the transfer, leading  to a net VAT repayment claim of £34,185. However, HMRC considered that the transfer had  been a transfer of a going concern (TOGC) which should not have been subject to VAT.  HMRC therefore rejected the taxpayer’s claimed VAT refund and, as a result, considered  that the taxpayer, in fact, had a liability to VAT of £5,197.35.


The key question was whether the transfer of assets from the failing law firm to the taxpayer was  a TOGC. The FTT considered the relevant legislation, principally:

  • section 5(3) of VATA 1994, which provides that the Treasury may by order provide that a  transaction may be treated as neither a supply of goods nor a supply of services and will  therefore not be subject to VAT. Such a supply is a transfer from one business to another of  the entire or part of the business to be carried on by the new business; and
  • Regulation 5 of Statutory Instrument 1995/1268 (Special Provisions) Order 1995, which  provides that, where the transfer is of part of a business capable of separate operation by the  new business, such transfers of part of the business will also not be subject to VAT.

The FTT held that the business of a solicitor was “to take instructions from a client; to consider  the law and the facts; to advise the clients accordingly and where possible bring the transaction  to a satisfactory conclusion for the clients.”  The taxpayer could not conduct that business,  particularly considering that it:

  • was not regulated by the Solicitors Regulatory Authority;
  • did not have a full complement of staff, equipment and office premises from which to  operate; and 
  • did not carry professional indemnity insurance. 

The FTT held, therefore, that the taxpayer was simply intended to (and could only) orchestrate  the closing down of the business and the collection of monies due to the failed law firm to  reduce the partners’ liability to creditors. Accordingly, the transfer was not a TOGC and was  therefore subject to VAT, the result of which being that the taxpayer was entitled to the claimed  repayment of VAT of £34,185. 


This decision is a useful reminder that the consideration of whether a transfer of business assets  is a TOGC and, therefore, whether it is subject to VAT, is highly fact sensitive. The nature and  essence of the business in question is central to that consideration. 

To read the decision click here.