When buying or selling a business in the United Kingdom, Value Added Tax (VAT) can significantly affect the overall cost and structure of the transaction. One important provision within UK VAT legislation is the Transfer of a Going Concern (TOGC). This rule allows certain business transfers to be treated as outside the scope of VAT, meaning VAT is not charged on the sale. For many business owners, understanding TOGC is essential because it can improve cash flow, simplify completion and prevent unnecessary financial pressure during a transaction.

What Is a Transfer of a Going Concern?

A Transfer of a Going Concern occurs when a business, or part of it, is sold as an operating entity capable of continuing immediately under new ownership. Rather than disposing of isolated assets, the seller transfers the elements that allow the enterprise to function — such as stock, goodwill, equipment, contracts and sometimes employees. When the criteria are met, the sale is not considered a taxable supply for VAT purposes, which can make a substantial difference, particularly in high-value deals.

The Rules Set by HMRC

The framework for TOGC is determined by HM Revenue & Customs, which requires specific conditions to be satisfied. The purchaser must intend to carry on the same type of business activity, and the assets transferred must form a viable trading operation. Where the business is VAT registered, the buyer generally needs to be registered or required to register at the time of transfer. In property-related transactions, further technical factors — including the option to tax — can influence whether TOGC treatment applies. These requirements mean careful planning is essential before completion.

Situations Where TOGC Commonly Applies

TOGC frequently arises in the sale of established trading companies, retail outlets transferring stock and goodwill, service businesses passing contracts and staff to a new owner, and the sale of rental properties with existing tenants in place. The key principle across all scenarios is continuity. The business must be capable of continuing without significant interruption. If the arrangement resembles a simple asset disposal, the transaction may fall outside TOGC rules and VAT could become payable.

Benefits of TOGC Treatment

The financial and administrative advantages of TOGC can be considerable. Because VAT is not charged on the transfer, the purchaser avoids funding a large VAT payment upfront and reclaiming it later. This improves liquidity and reduces reliance on additional financing. The process also simplifies post-completion VAT adjustments and supports smoother operational continuity. However, incorrect application of TOGC can result in HMRC assessments, interest and penalties, which is why accuracy and professional guidance are vital.

Practical Considerations Before a Business Transfer

Before proceeding with a transaction, both parties should ensure that contracts clearly reflect the intention for TOGC treatment and that VAT registration requirements are addressed in advance. Consideration must also be given to employee transfers, record-keeping and property elections where relevant. Even small errors — such as incorrect timing of registration or unclear documentation — can jeopardise eligibility. Early professional advice allows potential issues to be identified and resolved before they become costly.

How SAS Accountants Support TOGC Transactions

Firms such as SAS Accountants play an important role in helping businesses navigate TOGC requirements. Their services typically include assessing whether a transaction qualifies, structuring the deal to achieve efficient VAT treatment, preparing compliant documentation and providing guidance on registration and property matters. By coordinating the process between buyer, seller and HMRC where necessary, they help ensure that transfers proceed smoothly and remain fully compliant.

Conclusion

TOGC VAT treatment is a powerful mechanism within UK VAT law that can significantly influence the cost and practicality of buying or selling a business. While the concept is based on the continuation of trade, the detailed rules require careful interpretation and precise execution. With thorough planning and support from experienced advisers such as SAS Accountants, businesses can approach transfers with confidence, minimise risk and complete transactions in a financially efficient manner.