TOGC – VAT ruling is ‘VAT neutral’ but results in an additional £680k SDLT cost

The recent VAT Tribunal case of Haymarket Media Group Limited v HMRC [2022] TC08495 demonstrated that when VAT errors occur, the risk is not always a VAT risk.

If the assets of a business are sold to a party who intends to use those assets to carry out the same type of business as the seller, subject to certain other conditions, the sale of those assets is outside the scope of VAT, so no VAT is chargeable on the sale. This is typically known as a Transfer Of a Going Concern or ‘TOGC’ in the VAT world.

Haymarket owned a site that was ideal for residential development, so to enhance its value it sought planning permission for such a use. It never had any intention to develop the site itself, just dispose of the land once planning permission was obtained.

When it sold the land (to a residential developer), it treated the sale as a TOGC and did not charge VAT.

The VAT Tribunal has ruled that VAT should have been charged because the land acquired was to be used by the buyer (developer) for a different purpose than Haymarket (who held the land as an investment, not to develop) and Haymarket had opted to tax the site.

Although the VAT that was due on the sale was recoverable by the buyer, the ruling is significant because SDLT is chargeable on the VAT-inclusive value of the land transaction, so the value of the transaction was increased by 20% for SDLT purposes, resulting in an additional SDLT bill of £680k. SDLT is not recoverable.

It should be noted, however, that VAT is not always recoverable by a buyer, because how they intend to use the property acquired will determine whether, or the extent to which, the VAT paid is recoverable.

Although the Haymarket case found that VAT should be applied where initially it had not been, we often come across the reverse, where too much VAT has been charged. Where VAT is charged, in addition to applying the TOGC rules, there are a number of ways in which the VAT due on property transactions can be reduced or eliminated, often leading to a reduced SDLT liability in addition to any VAT savings that may be generated.

Property VAT is a specialist area of tax on which ETC Tax advises and we would be happy to discuss any property VAT queries you may have. Although potential VAT opportunities can best be identified (and issues resolved) if matters are considered as early as possible (ideally well before completion), all is not lost if the transaction has already occurred, it is normally possible to go back up to four years to review transactions and generate VAT savings.

So, if you or your clients have property transactions in the pipeline or wish to review past transactions with a view to identifying potential VAT savings opportunities, please speak to your usual ETC Tax contact or contact our Associate VAT Director, Keith Miller, to discuss. We will provide an initial (FOC) appraisal of potential opportunities or risks, and then help you navigate your way through the steps required to generate VAT/SDLT savings and/or minimise the impact of VAT and SDLT on your property transactions.