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Buying a business

Transfer of a going concern: when buying a business comes with no VAT bill

A transfer of a going concern carries no VAT if HMRC's conditions are met. What they are, when a deal falls outside them, and what it means for your funding.

Reading time 5 min read
Category Business guides
Written by The bizbritain team
When you buy a business's assets, the price may carry VAT at 20%. A transfer of a going concern is the main exception. If the business is sold as a working business and you carry it on, no VAT is charged on the sale. The rules are HMRC's, and they are not optional.
This guide explains what counts as a going concern and the conditions HMRC sets. It also covers what happens when a deal falls outside them, and what that means for the money you need to raise.

Section 01

Is VAT payable on a transfer of a going concern?

No, not if the conditions are met. HMRC treats the sale as no supply at all for VAT, so the seller must not charge it. HMRC says one purpose of the rules is to spare the buyer from funding VAT on the purchase.
A going concern is a business that is still trading when it changes hands. It can be making a loss and still count. What matters is that you take over a business you can run, not just a set of assets.
Normally, when a VAT-registered business sells its assets, VAT applies at the usual rate. On assets priced at £300,000, that would be another £60,000.
Neither side can opt in or out. HMRC says the rules are mandatory, and getting them wrong can mean a penalty and interest.

Section 02

The conditions HMRC sets

All of these must apply, according to HMRC's VAT Notice 700/9.

  1. The assets are sold as a business

    Stock, equipment, goodwill, premises, and fixtures and fittings pass to you together as part of the sale.

  2. You carry on the same kind of business

    It does not have to be identical. A bakery bought to run as a bakery counts. A bakery bought for its ovens and closed down does not.

  3. You are registered for VAT if the seller is

    If the seller is VAT-registered, you must be registered already or become registered as a result of the purchase.

  4. Premises need extra steps

    If the seller has opted to tax the building, you must opt to tax it too. You tell HMRC by the relevant date, and you tell the seller your option still applies.

  5. Part of a business can operate on its own

    If you buy one part, such as one shop of three, it must be able to run as a business by itself.

Our guide to taking over the lease when you buy a business covers the landlord's side of the premises.

Section 03

When a deal is not a going concern

Some sales fail the conditions. HMRC gives these examples.
  • You buy the assets but do not carry on the business. You absorb them into a business of your own.
  • You do not plan to use the assets for the same kind of business as the seller.
  • You are not registered for VAT, and the purchase does not require you to register.
The business must also still be a going concern on the day it changes hands.
Then VAT is usually charged on the assets at the normal rate.
What if you buy the company's shares instead? Then the company keeps its own assets, so the going concern rules do not apply to them. Our guide to asset sales and share sales explains how that choice changes the deal.

Section 04

What if VAT is charged by mistake?

This catches buyers out. If the sale was a going concern and the seller charged VAT anyway, you cannot reclaim it from HMRC. That is because, for VAT, no sale took place.
The seller has to cancel the invoice and refund you. That depends on getting the money back from them.
The seller is responsible for the treatment. So agree it in writing before completion, with your accountant and solicitor.

Section 05

How VAT changes what you need to borrow

If the deal is a going concern, you fund the agreed price. If it is not, VAT at 20% may sit on top of the asset price.
If you are VAT-registered, you may be able to reclaim that VAT later. Ask your accountant when. Until then, the money has to come from somewhere at completion.
So settle the VAT position before you ask for funding. Then put these questions to the lender.
  • Will the facility cover the price before VAT, or after it?
  • If VAT is due, can a short-term facility bridge it until you reclaim it?
  • Does the lender want the accountant's view on VAT in writing?
A broker can look at the deal across a wider range of lenders. We can help you arrange business acquisition finance that matches the real cost of the deal, VAT included.

This guide is general information, not financial advice. Applications are subject to status, affordability and lender criteria.

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