The brief sets out the HMRC’s position on the transfer of a business into a VAT group, and also clarifies the situation where a business is transferred to a person without an establishment in the UK.

The revised guidance follows the outcome of the IMSL case ([2015] UKUT 0341 (TCC)). IMSL had been developing a banking platform. It sold this part of its business to Virgin Money Management Services Limited (VMMSL). VMMSL continued to develop the software and then supplied software services to Virgin Money Bank Limited (VMBL).

VMBL used these services to supply retail banking to its customers. VMMSL and VMBL were at the time members of the Virgin Money Group VAT group (VMG).

HMRC considered that the supply of the assets of IMSL’s business to VMMSL was subject to VAT because that business ceased at the point of transfer. However, the UT disagreed with this conclusion, saying that the transfer of IMSL’s banking support services business to VMMSL did amount to a TOGC.

The UT considered that while VAT grouping treats the representative member as carrying on the business of each member of that group, it does not change the nature of the businesses carried on by the individual members whose activities remain separate as a matter of fact.

Looked at objectively, VMMSL had not intended to liquidate the transferred assets but rather to carry on the same kind of business as IMSL as part of its own banking support services. Consequently, in the tribunal’s judgment, there is nothing in the VAT group rules that could prevent the transfer of IMSL’s business to VMMSL from being a TOGC.

In light of this decision, HMRC says it now accepts that if a business is transferred to a company in a VAT group and both of two conditions apply, then it is a TOGC.

The two requirements are that the company intends to continue to use the transferred assets to operate the same kind of business in providing services to other group members, and that those other group members use the services to make supplies outside of the group.

HMRC has also revised its policy relating to transfers out of a VAT group. Where, were it not for the VAT grouping rules, a business exists, the normal TOGC rules apply to transfers out of a VAT group. This supersedes guidance in section 4.3 of Public Notice 700/9, which HMRC says will be amended in due course.

The guidance also states that a VAT group that cannot recover all the VAT it incurs on its purchases must, in certain circumstances, account for output tax on assets coming into the group via a TOGC (self-supply charge and Capital Goods Scheme (CGS)).

The brief provides details of what should be done in 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, within four years of the date of the transaction.

Finally, the brief explains HMRC’s policy in relation to 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, i.e. they have not registered for VAT by the time of the sale.

Revenue and Customs Brief 11 (2016): VAT and the transfer of a going concern is here.