HMRC has issued Revenue & Customs Brief 11/2016. This follows the Upper Tribunal's judgment in the case of Intelligent Managed Services Ltd (IMSL). The brief reverses HMRC's existing policy in relation to the transfer of a business as a going concern (TOGC), where the transferor or transferee are members of a VAT group.
IMSL transferred part of its business and assets to Virgin Money Management Services Ltd (VMMSL) whereupon, VMMSL carried on that business wholly within the existing Virgin Money Group (VMG) VAT group. It did not make supplies of goods or services to third parties outside the VMG VAT group and, as a consequence, due to the operation of the VAT group rules, HMRC took the view that the business activity had ceased. As a result, HMRC concluded that one of the legal conditions for there to be a TOGC – the condition which states that the transferor must 'carry on' the same kind of business – was not met.
The Upper Tribunal concluded in its judgment last year that HMRC's argument was unfounded. Whilst the VAT group rules create a fiscal fiction that there is no supply of goods or services between members of the same VAT group, it was clear that VMMSL had, as a matter of fact, carried on the business previously carried on by IMSL albeit that its services were supplied intra-group. HMRC now accepts that its previous policy in this regard was incorrect. Accordingly, where a business is acquired as a going concern by a company within a VAT group, provided that all other conditions are met, the transfer can be regarded as a TOGC for VAT purposes. This is the case even if the transferee only provides goods or services to other members of the VAT group. HMRC also accept that where a VAT group transfers a business out of its VAT group to a third party transferee the transfer is equally capable of being a TOGC even if, prior to the transfer, the business being transferred was conducted solely within the seller's VAT group.