Q&A: The conditions for a transfer of going concern

Q. I own a number of restaurants, all selling English-style food. I plan to sell two of these to separate buyers. The first of these intends to operate an Asian fusion restaurant, and the second (smaller) premises is going to be turned into a micropub. Both buyers insist that the sales will meet the conditions for a transfer of a going concern (TOGC) so I should not add VAT to the purchase costs. However, I'm worried that this isn’t correct; in the first case the type of food served will be different, and in the second, the new establishment will not be a restaurant, although I am told the owner will serve bar snacks. What is the correct position?

A: The that the fact that the first buyer will be serving a completely different type of food is irrelevant, it is the point that they intend to operate as a restaurant, i.e. the same type of business, that is key. Subject to all the conditions being met, this should not be a problem and you should not need to charge VAT. However, as the second buyer is intending to trade as a completely different type of business this cannot come within the TOGC provisions. You will need to add VAT to the price charged accordingly.

About the Author

Paul Newbold

Partner

After qualifying with KPMG where he gained significant audit experience, Paul joined Torgersens in 1991 and became the firm’s audit partner in 2000. Paul employs his broad range of financial skills to provide commercial and accounting advice to a range of owner-managed businesses in the independent retail, education and professional services sectors. He also has extensive experience dealing with charities, Registered Social Landlords and not-for-profit organisations and co-operatives.   Outside of work, Paul likes to visit Eastern France and South-West German and read novels by David Morrell, Michael Blake and Harper Lee. He also likes watching films, his favourite is The Shawshank Redemption.

To get in touch please e-mail paul.newbold@torgersens.com.