When a business is sold as a going concern, VAT is normally not charged on the sale price — provided specific conditions set out in HMRC VAT Notice 700/9 are met. This is known as the Transfer of Going Concern (TOGC). Getting it wrong can mean the buyer faces an unexpected VAT bill, or the seller has a VAT compliance problem.
Quick Answer
A Transfer of Going Concern (TOGC) is a VAT-neutral sale — no VAT is charged on the business sale price. For TOGC to apply, the transaction must meet HMRC's conditions: the assets must be used to carry on the same kind of business, the buyer must be VAT registered (or must register as a result of the transfer), and there must be no meaningful break in trading. TOGC is not automatic — both parties need to confirm the conditions are met. If they are not, VAT must be charged on the relevant assets.
Contents
What is a Transfer of Going Concern?
When a business (or part of a business) is sold as a going concern — that is, as a functioning trading entity rather than a collection of individual assets — HMRC treats the transaction as outside the scope of VAT. This is the Transfer of Going Concern (TOGC) treatment.
The legal basis for TOGC is Article 19 of the EU VAT Directive, carried over into UK law after Brexit via the VAT Act 1994, Section 49, and expanded in HMRC's VAT Notice 700/9. The principle is that transferring a business as a going concern is an economic activity that should not be burdened with VAT, because the buyer is simply stepping into the shoes of the seller.
TOGC applies to asset purchases (trade and assets sales). It does not apply to share purchases — a share sale has different VAT treatment, discussed separately below.
Why TOGC matters
If TOGC did not exist, a buyer purchasing a VAT-registered business would have to pay 20% VAT on top of the agreed price — then wait to reclaim it through their own VAT return. On a £500,000 acquisition, that would mean funding an additional £100,000 in cash at completion, even temporarily.
For many buyers — especially those funding the acquisition with loans — this would be a significant practical problem. TOGC removes this cash flow burden.
For sellers, getting the VAT treatment wrong creates compliance risk. If a seller does not charge VAT when they should have, they may become liable to HMRC for the output VAT that should have been charged. If they charge VAT when TOGC should apply, the buyer may have difficulty recovering it cleanly.
Both parties benefit from getting TOGC right.
The TOGC conditions
HMRC sets out the conditions for TOGC in VAT Notice 700/9. The key conditions are:
1. The buyer must carry on the same kind of business
The assets being transferred must be used by the buyer to carry on the same type of business as the seller. This does not mean the business must be identical — but the fundamental nature of the trading activity must continue. A seller running a restaurant cannot sell to a buyer who will convert it immediately to a gym and claim TOGC.
There must be continuity of economic activity. If the buyer plans to fundamentally change the nature of the business, TOGC may not apply.
2. The assets must be capable of forming an independent business
What is being transferred must be capable of operating as a standalone business, not just a collection of individual assets. The seller must be transferring a genuine business undertaking — with goodwill, customers, staff, systems — rather than just assets.
3. No meaningful break in trading
There should be no significant interruption in trading between the seller ceasing operations and the buyer continuing. HMRC does not define a specific time gap, but a prolonged closure between sale and restart risks TOGC treatment being challenged.
4. The buyer must be VAT registered (or must become VAT registered)
At the time of the transfer, the buyer must either be VAT registered or must immediately become VAT registered as a result of the transfer. If the buyer is not VAT registered and the business being acquired has annual taxable turnover above the VAT registration threshold (£90,000 in 2026/27), the buyer must register immediately.
If the buyer intends to use the business assets to make only exempt supplies (i.e. activities that are VAT exempt), TOGC does not apply.
5. Where the seller has opted to tax property
Where the seller has opted to tax a property included in the sale (i.e. elected to charge VAT on rents or on the property disposal), the buyer must also opt to tax the same property before the sale completes. If the buyer does not opt to tax, the property element of the sale will not qualify for TOGC and VAT must be charged on it.
TOGC and VAT registration
A common practical issue arises when the buyer is not yet VAT registered at the date of completion. This frequently happens when a buyer is acquiring their first business.
The rules allow the buyer to register for VAT immediately as a result of the transfer, rather than requiring pre-existing registration. However, the registration should be in place (or at least applied for) before completion. Buyers should not assume they can register retrospectively and still claim TOGC protection — discuss this with your tax adviser before completion.
Steps for buyers:
Check whether the business being acquired has annual taxable turnover above £90,000 (the registration threshold in 2026/27)
If yes — and you are not already VAT registered — apply for VAT registration before or at completion
Confirm the VAT registration number with the seller before completion
Confirm with the seller that TOGC conditions are met and agree in writing that no VAT will be charged
Steps for sellers:
Confirm the buyer is VAT registered (check their VAT number on HMRC's online checker)
Agree in writing that TOGC applies and document the basis for this conclusion
Do not issue a VAT invoice for the sale price
Retain records showing why TOGC was applied, in case of future HMRC enquiry
TOGC and property
Property is one of the most technically complex areas of TOGC. The rules around opted-to-tax property require careful attention.
Standard-rated property
If the seller owns the freehold or a long leasehold of commercial property and has opted to tax it, the sale of that property would normally attract VAT at 20%. For TOGC to apply to the property element, the buyer must also opt to tax the same property before completion.
This means:
The buyer notifies HMRC of their option to tax the property before the transfer
The seller confirms the buyer has opted to tax before treating the disposal as TOGC
If the buyer does not opt to tax, VAT must be charged on the property element
TOGC and leased premises
Where the business operates from leased (rather than owned) premises, the lease assignment is a separate transaction to the business sale. TOGC does not typically apply to a lease assignment itself — the VAT treatment of the lease depends on the existing lease terms and whether it is an assignment or a new grant.
Opted-to-tax and new TOGC buyers
A buyer who takes on a commercial property under TOGC and opts to tax should be aware that the option to tax is generally irrevocable for 20 years (subject to certain exceptions). The buyer is committing to a long-term VAT status for that property.
What is not covered by TOGC
TOGC does not apply to every element of a business sale. Items commonly excluded from TOGC treatment include:
Cash and receivables:The transfer of cash balances and trade debtors is not a supply for VAT purposes. These are financial instruments, not goods or services.
Exempt supplies:If part of the business makes only VAT-exempt supplies, TOGC may not apply to that part.
Assets disposed of separately:Where assets are sold separately from the business (e.g. a vehicle sold to the seller personally before completion), TOGC does not apply to those assets. Normal VAT rules apply.
Goodwill sold to a non-registrant:If the buyer is not VAT registered and cannot immediately register, TOGC conditions are not met.
Share sales and VAT
Share sales are treated entirely differently for VAT purposes. The sale of shares is an exempt supply — it is not subject to VAT and is outside the normal VAT framework. There is no VAT on the purchase price in a share sale.
This is one of the reasons buyers sometimes prefer asset purchases for specific assets (they can recover input VAT through their own returns) while sellers generally prefer share sales (they avoid the complexity of TOGC and the risk of VAT errors).
In a pure share sale, VAT is irrelevant to the transaction price. TOGC conditions do not apply and do not need to be checked.
When TOGC does not apply
If the TOGC conditions are not met, the seller must charge VAT at the standard rate (20%) on the VAT-exclusive sale price of taxable assets.
This creates a cash flow issue for the buyer, who must pay the VAT upfront and then reclaim it through their VAT returns. Depending on their VAT position and the timing of returns, recovery may take one to three months.
In practice, when TOGC does not apply, the parties often negotiate to adjust the price or the payment terms to account for the VAT cash flow impact.
If the seller mistakenly does not charge VAT (incorrectly treating it as a TOGC when the conditions are not met), the seller becomes liable to HMRC for the output VAT that should have been charged. This can be a significant liability.
Common mistakes and how to avoid them
Assuming TOGC applies without checking the conditions
TOGC is not automatic. Both parties must positively confirm that all conditions are met. Do not assume TOGC applies just because this is a "normal" business sale.
How to avoid:Run through every TOGC condition explicitly with your accountant or tax adviser before completion.
Buyer not VAT registered at completion
If the buyer needs to register for VAT but applies after completion, TOGC may be at risk. Applications for VAT registration should be made well in advance.
How to avoid:Identify whether VAT registration is needed at the start of the due diligence process, and apply for registration at least four to six weeks before the expected completion date.
Seller opted to tax property — buyer did not opt to tax
This is a common and potentially costly error. If the seller has opted to tax a property and the buyer has not, the property element of the sale is subject to VAT. This should be identified during legal due diligence.
How to avoid:Check opted-to-tax status of any property in the due diligence stage. If the seller has opted to tax, the buyer's solicitor and tax adviser should confirm whether the buyer needs to opt to tax and, if so, ensure this is done before completion.
Part of the business does not transfer (breaking the TOGC)
If key elements needed for the business to operate — the lease, key licences, key staff — do not transfer simultaneously, the TOGC may be broken. HMRC looks at whether a functioning business transferred, not just whether some assets transferred.
How to avoid:Ensure all elements of the business transfer simultaneously at completion. If a licence cannot transfer immediately (e.g. a CQC registration), take tax advice on whether TOGC can still apply.
Not documenting the TOGC treatment
HMRC may enquire into the VAT treatment of a business sale, particularly large ones. If the parties cannot demonstrate why TOGC was applied — showing that each condition was checked and met — there is a risk of VAT assessment.
How to avoid:Keep a clear written record of the TOGC analysis — which conditions were checked, what evidence was reviewed, and the conclusion reached by your advisers.
TOGC checklist
For sellers and buyers to work through together before completion:
Confirm this is an asset/trade sale (not a share sale — TOGC does not apply to share sales)
Confirm the buyer will carry on the same kind of business
Confirm the assets transferred are capable of forming an independent business
Confirm there is no meaningful break in trading
Confirm the buyer is VAT registered (or will be immediately upon transfer)
Check the VAT registration number of the buyer via HMRC's VAT checker
Identify whether any property in the sale has an option to tax
If opted to tax: confirm whether the buyer has opted to tax the same property
Confirm the buyer intends to use assets to make taxable (not exempt) supplies
Document the TOGC analysis in writing with your tax advisers
Confirm no VAT invoice will be issued for the sale price
Retain all records in case of future HMRC enquiry
FAQs
Is VAT always charged on a business sale?
No. If the TOGC conditions in HMRC VAT Notice 700/9 are met, the sale is outside the scope of VAT and no VAT is charged. In a share sale, the transfer of shares is VAT exempt. VAT is only charged on an asset sale where TOGC conditions are not met.
What is VAT Notice 700/9?
HMRC VAT Notice 700/9 is HMRC's guidance on the Transfer of Going Concern. It sets out the conditions that must be met for a business sale to qualify as a TOGC and provides detailed guidance on property, partial transfers, and other edge cases. It is the primary reference for TOGC questions and should be reviewed alongside professional tax advice.
What if only part of a business is sold?
A partial business transfer can qualify for TOGC if the part being sold is capable of operating independently as a separate business. For example, selling one of several divisions to a buyer who will run it as a standalone operation. Whether a partial transfer qualifies as TOGC depends on the specific facts and HMRC's assessment of whether a genuine independent business transferred.
Can TOGC apply if the buyer is not currently VAT registered?
Yes, provided the buyer registers for VAT immediately as a result of the transfer. The buyer must either register before completion or ensure their registration application is in process. It is not sufficient to register months after completion and claim TOGC retrospectively. Take advice from a tax specialist if there is any uncertainty about timing.
Does TOGC apply to online businesses?
Yes, in principle — TOGC applies to any business sale that meets the conditions, including online businesses, e-commerce operations and digital service businesses. The practical challenge is demonstrating continuity of the "same kind of business" when the business may be very dependent on algorithms, platform rankings or the owner's personal brand. Take specific advice if there is uncertainty.
What happens if the seller charges VAT but shouldn't have?
If VAT is incorrectly charged on a TOGC sale, the buyer can ask the seller to issue a correcting credit note and return the VAT. However, the seller cannot simply refund VAT they have already paid to HMRC — they need to amend their VAT return. This creates administrative complications. It is far better to get the TOGC analysis right before completion.
Should I get professional advice on TOGC?
Yes. TOGC is a technical VAT area with significant financial consequences if handled incorrectly. Both the seller and buyer should seek independent advice from a qualified tax adviser with experience of business sale transactions. This guide is for general education only.
Key takeaways
TOGC (Transfer of Going Concern) means no VAT is charged on a business asset sale where HMRC's conditions are met — as set out in VAT Notice 700/9.
TOGC is not automatic — both parties must confirm the conditions are met and document the analysis.
The main conditions are: same kind of business carried on by the buyer; assets capable of forming an independent business; no break in trading; buyer is VAT registered or immediately registers.
Where the seller has opted to tax property, the buyer must also opt to tax before completion or VAT applies to the property element.
Share sales are VAT exempt — TOGC conditions do not apply to share sales.
If TOGC conditions are not met, the seller must charge VAT at 20% on taxable assets. The buyer recovers this through their VAT returns, but it creates a cash flow burden.
Common mistakes include buyer not being VAT registered at completion, seller-opted-to-tax property with buyer failing to opt to tax, and not documenting the TOGC analysis.
Seek independent qualified tax advice on TOGC before completing any asset sale.
Related resources
Important disclaimer
Buy a Business Ltd is a marketplace, not a broker. Information, guides, checklists and examples on this site are for general guidance only and do not constitute legal, tax, financial, investment, valuation, brokerage or regulated advice.
VAT rules, thresholds and HMRC guidance change. You must seek independent, qualified tax advice before making any decision about VAT treatment on a business sale. This guide is for general education only and does not constitute tax advice.
Sources and useful references
HMRC VAT Notice 700/9: Transfer of a Going Concern
VAT Act 1994, Section 49
HMRC: Option to tax land and buildings (Notice 742A)
GOV.UK: VAT registration threshold and registration guidance
ICAEW: Business transfers and VAT guidance