Popcorn is standard rated. DIY popcorn – corn which is popped in a microwave is VAT free. Don’t be lazy! 🍿
Tag Archives: output-tax
VAT: What is a TOGC? Why is it important?
Normally the sale of the assets of a VAT registered business will be subject to VAT at the appropriate rate. A TOGC, however is the sale of a business including assets which must be treated as a matter of law, as “neither a supply of goods nor a supply of services” by virtue of meeting certain conditions. It is always the seller who is responsible for applying the correct VAT treatment and will be required to support their decision.
Where the sale meets the conditions, the supply is outside the scope of VAT and therefore VAT is not chargeable.
The word ‘business’ has the meaning set out in The VAT Act 1994, section 94 and ‘going concern’ has the meaning that at the point in time to which the description applies, the business is live or operating and has all parts and features necessary to keep it in operation, as distinct from its being only an inert aggregation of assets.
TOGC Conditions
The conditions for VAT free treatment of a TOGC:
- The assets must be sold as a business, or part of a business, as a going concern
- The assets must be used by the transferee in carrying on the same kind of business, whether or not as part of any existing business, as that carried on by the transferor in relation to that part (HMRC guidance uses the words “intend to use…” which, in some cases may provide additional comfort)
- There must be no break in trading
- Where the seller is a taxable person (VAT registered) the purchaser must be a taxable person already or immediately become, as a result of the transfer, a taxable person
- Where only part of a business is sold it must be capable of separate operation
- There must not be a series of immediately consecutive transfers
- Where the transfer includes property which is standard-rated, either because the seller has opted to tax it or because it is a ‘new’ or uncompleted commercial building the purchaser must opt to tax the property and notify this to HMRC no later than the date of the supply. This may be the date of completion or, if earlier, the date of receipt of payment or part payment (eg; a deposit). There are additional anti-avoidance requirements regarding the buyer’s option to tax
Please note that the above list has been compiled for this article from; the legislation, HMRC guidance and case law. Specific advice must be sought.
Property transfer
The sale of a property may qualify for TOGC if the above tests are met. Usually, but not exclusively, a TOGC sale is the sale of a tenanted building when the sale is with the benefit of the existing lease(s) – (the sale of a property rental business rather than of the property itself). Another example of a property TOGC is where a property under construction is sold (a development business). As may be seen, timing with a property TOGC is of utmost importance. For example, an option to tax one day late will invalidate TOGC treatment. A guide to land and property.
What purpose do the TOGC rules serve?
The TOGC provisions are intended to simplify accounting for VAT when a business changes hands. The main purposes are to:
- relieve the buyer from the burden of funding VAT on the purchase, helping businesses by improving their cash flow and avoiding the need to separately value assets which may be liable at different rates or are exempt and which have been sold as a whole
- protect government revenue by removing a charge to tax and entitlement to input tax where the output tax may not be paid to HMRC, for example, where a business charges tax, which is claimed by the new business but not paid by the selling business
What if it goes wrong?
TOGC treatment is not optional. A sale is either a TOGC or it isn’t. It is a rare situation in that the VAT treatment depends on; what the purchaser’s intentions are, what the seller is told, and what the purchaser actually does. All this being outside the seller’s control.
Add VAT when TOGC treatment applies:
Often, the TOGC point can be missed, especially in complex property transactions.
The addition of VAT is sometimes considered a “safe” VAT position. However, output tax will have been charged incorrectly, which means that when the buyer claims VAT shown on the relevant invoice, this will be disallowed. This can lead to;
- potential penalties and interest from HMRC
- the buyer having to recover the VAT payment (often the seller, having sold a business can be difficult to track down and then obtain payment from)
- significant cash flow issues (HMRC will need to be repaid the input tax claim immediately)
- if a property sale, SDLT is likely to be overpaid
Sale treated as a TOGC when it is a taxable supply:
When VAT free TOGC treatment is applied to a taxable supply (possibly as one, or more of the TOGC conditions are not met) then there is a tax underdeclaration. The seller will be assessed by HMRC and penalties and interest are likely to be levied. There is then the seller’s requirement to attempt to obtain the VAT payment from the buyer. Similarly to above, this is not always straightforward or possible and it may be that the contract prohibits additional payment. There is likely to be unexpected funding issues for the buyer if (s)he does decide to make the payment.
Considering the usually high value of sales of businesses, the VAT cost of getting it wrong can be significant.
Summary
This is a complex area of the tax and an easy issue to miss when there are a considerable number of other factors to consider when a business is sold. Extensive case law (example here and changes to HMRC policy here) insists that there is often a dichotomy between a commercial interpretation of a going concern and HMRC’s view. I sometimes find that the buyer’s intentions change such that the TOGC initially applied becomes invalid when the change in the use of assets (from what was notified to the seller) actually takes place. HMRC is not always sympathetic in these situations. One of the questions I am often asked is: “How long does the buyer have to operate the business after purchase so that TOGC treatment applies?” Unsurprisingly, there is no set answer to this and HMRC do not set a specific period. My view, and it is just my view, is that an absolute minimum time is one VAT quarter.
Contracts are important in most TOGC cases, so it really pays to review them from a VAT perspective.
I very strongly advise that specialist advice is obtained in cases where a business, or property is sold. And yes, I know I would say that!
VAT: The United Carpets case – single of multiple supplies?
Latest from the courts
Yet more on composite or separate supplies. As a background to the issue please see previous relevant cases here here here and here. This is the latest the seemingly endless and conflicting series of cases on whether certain supplies are multiple or single.
In the First-Tier Tribunal case (FTT) of United Carpets (Franchisor) Limited (UC) the issue was whether the appellant made a single supply of flooring and fitting or whether there were two separate supplies
Background
UC is a retailer of flooring (including carpets, underlay, vinyl and wood flooring), as well as beds. A customer who purchased flooring from the appellant was given the option to have an independent, self-employed, fitter to carry out the fitting of the purchased flooring. Each store has a pool of fitters who take on fitting work referred to them by the appellant. If the customer chooses, the fitter will attend the customer’s home to fit the flooring, as directed by the customer. The fitter is then paid by the customer for that work, with the money being received and retained, in full, by the fitter.
The fitters are self-employed and they use their own tools, and drive their own vehicles. They also have their own public liability insurance and are not covered by any of the appellant’s insurance policies. They are not paid by the UC and are not on the UC’s payroll. Since they are self-employed, the fitters have no ongoing obligations to the appellant (or vice versa) and can take on referrals as they please. The appellant does not hold any formal records for the fitters and is not aware of how much the fitters earn by way of the referrals. The rates charged by the fitters are determined by the fitters themselves.
The appellant’s Terms and Conditions of Sale included the following statements:
“The carpet fitting and delivery services provided by the Installer are supplied under a separate contract from the supply of goods to the Customer by the Company (UC). The Company is not responsible for the delivery or fitting of the Goods to the Customer.
“Full payment for the fitting services is due upon fitting payable by cash or cheque directly to the Installer. As detailed on the invoice, payment for the carpet fitting is made directly to the Installer under a separate contractual agreement between the Customer and the Installer…”
The issue
Whether the supplies of fitting services made to customers following the referral to the fitter by UC were supplies made by the self-employed carpet fitters who performed the services, or by UC as a single supply of flooring and fitting such that output tax was due from UC on both the retail sales and the fitting fees.
Contentions
HMRC determined that the appellant had incorrectly treated the supply of carpet fitting and contended that it supplied fitting services via sub-contractors and assessed the appellant for output tax on the fitting fees. HMRC further contend that the appellant made those supplies as part of a single supply, comprising both the flooring and the fitting services. Assessments were raised to recover the deemed underdeclared output tax.
UC’s position is that the self-employed fitters were completely independent, and that the fitting services do not form a single supply. Consequently, VAT was only due on the retail sales and not the fitting income.
Decision
The FTT concluded that there were two separate supplies:
- the supply of goods by UC to the customer, and
- the supply of services by the fitter to the customer.
After a review of the contractual documentation and the economic and commercial reality, the court was satisfied that there were three agreements:
- between UC and the customer
- between UC and the fitter
- between the fitter and the customer
The fitter provided services to the end consumer who was liable to pay the fitter.
Consequently, the appeal was allowed, and the assessments were set aside.
A significant amount of case law was cited (a list too long to reproduce here) but included were the cases of: Secret Hotels 2 Limited v HMRC; All Answers Ltd v HMRC and Tolsma v Inspecteur der Omzetbelasting Leeuwarden which were considered and applied.
Commentary
Yet another case on the perennial composite/single supply issue. This case was more straightforward than many on this subject and the outcome was no surprise. It is essential that businesses that potentially deal with agent/principal matters or make supplies at different VAT rates consider their position. Both contracts, other documentation and the commercial reality need to be considered. We recommend that in such circumstances a review is carried out specifically to establish the proper VAT position .
Changes to VAT Notice 700/1 – Voluntary registration
I have written about the pros and cons of voluntary registration here. HMRC has now updated Notice 700/1 – Who should register for VAT. The main changes are in respect of voluntary registration and the effective date of registration (EDR) and the impact on a business in selecting the date. Furthermore, information on pre-registration activities has been updated .
A VAT Did you know?
Sweetened rice cakes are zero-rated, but savoury flavoured ones are VATable.
BUT… The problem area is salted rice cakes. Lightly salted cakes are considered to require further preparation before consumption (and are therefore zero-rated) whereas more heavily salted rice cakes do not and are standard rated. However, there is no guideline as to where this borderline falls .
VAT: Transactions involving Bitcoin
What is cryptocurrency?
Cryptocurrency is a line of computer code that holds monetary value. Cryptocurrency is also known as digital currency and it is a form of money that is created by mathematical computations. In order for a Bitcoin transaction to take place, a verification process is needed, this is provided by millions of computer users called miners and the monitoring is called mining. Transactions are recorded in the blockchain which is public and contains records of each and every transaction that takes place. Cryptocurrency is not tangible, although they may be exchanged for traditional cash. It is a decentralised digital currency without a central bank or single administrator (which initially made it attractive) and can be sent from user to user on the peer-to-peer network without the need for intermediaries.
What is Bitcoin?
Bitcoin was the first popular cryptocurrency and it first appeared in 2009. The advantage of bitcoin is that it can be stored offline on the owner’s local hardware (a process called cold storage) which protects the currency from being taken by others. If a person loses access to the hardware that contains the bitcoins, the currency is lost forever, and it is estimated that as much as 23% of bitcoin has been mislaid by miners and/or investors.
Exchange between currencies and bitcoin
The VAT treatment of transactions exchanging traditional currencies for Bitcoin, or Bitcoin for currencies carried out for consideration (added by the supplier) are exempt services in a similar way to any other currency transactions via The VAT Act 1994, Schedule 9, group 5, item 1.
Paying for goods or services using Bitcoin
Similar to any other payment method, simply using Bitcoin to obtain goods or services is outside the scope of VAT and no VAT is due on the value the Bitcoin represents. That is to say that the authorities do not consider that such a transaction is a barter.
Provision of goods or services in return for Bitcoin payment
The provision of goods or services paid for in Bitcoin are treated in a similar way as any supplied for consideration consisting of
- Traditional currencies, or
- Non-monetary consideration
and the value is; anything received by the supplier in consideration of that supply.
Should the consideration be in Bitcoin, there two alternatives for the conversion of foreign currencies into a main currency (although these were drafted before the introduction of Bitcoin and originally relate simply to foreign currencies)
- the latest exchange rate recorded on the most representative exchange market, or
- the latest exchange rate published by the European Central Bank
However, as above, because Bitcoin is not administered by any bank, this may make valuation difficult. The VAT Committee of the European Commission (EC) has indicated that a potential resolution is to use Open Market Rate (OMR*) as the exchange of the virtual currency. This would be the responsibility of the supplier. This is likely to be commercially available information from the websites of the likes of; coindesk, Cryptocompare or Cointelegraph for eg.
All of the above seems logical, although confirmation provided by the VAT Committee is welcome.
* OMR is the amount for which an asset is transferred between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion.
VAT: Holiday Lets – don’t get caught out
All residential letting is exempt… except holiday lets, which are standard rated at 20%. So, what is the difference? After all a house is a house, but the VAT treatment depends on how the property is advertised or “held out”.
If a property is held out for holiday accommodation, then the rental income is taxable.
What is holiday accommodation?
Holiday accommodation includes, but is not restricted to; any house, flat, chalet, villa, beach hut, tent, caravan or houseboat. Accommodation advertised or held out as suitable for holiday or leisure use is always treated as holiday accommodation. Also, increasingly, it is common for farms and estates to have cottages and converted barns within their grounds, which are exploited as furnished holiday lets so this use must be recognised for VAT purposes. Residential accommodation that just happens to be situated at a holiday resort is not necessarily holiday accommodation.
This treats holiday lets the same way as hotels, inns and B&B were VAT applies, which is fair.
Off-season lettings
If holiday accommodation is let during off-season, it should be treated as exempt from VAT provided it is let as residential accommodation for more than 28 days and holiday trade in the area is clearly seasonal.
What does this mean?
If the letting business exceeds the VAT registration threshold, currently £90,000, it must register for VAT. This usually means that either the business would lose a sixth of its income to HMRC or its letting fees would increase by 20% – which is not usually an option in a particularly price sensitive market. The only upside to registration is that VAT incurred on costs relating to the letting (input tax) would be recoverable. This may be on expenditure such as; agents’ fees, maintenance, refurbishments, laundry, websites and advertising etc.
Agents
If a property owner provides a property to a holiday letting agent and the agent itself provides the letting directly to the end users, this does not avoid the standard rating, even if the agent pays a guaranteed rent to the freeholder. This can catch some property owners out.
Sale of the property
When the owner sells the property, although it may have been used for standard rated purposes, the sale is usually treated as exempt. However, zero rating may be available for the first sale or long lease if it is a new dwelling with no occupancy restrictions. The sale of a “pure” holiday property is likely to be standard rated if it is less than three years old. To add to the complexity, it is also possible that the sale may qualify as a VAT free Transfer Of A Going Concern (TOGC). These are important distinctions because they determine, not only if VAT is chargeable, but, if the sale is exempt, there is usually a clawback of input tax previously claimed, potentially visa the Capital Goods Scheme (CGS).
Overseas properties
A final point: please do not forget overseas property lets. My article here sets out the tax risks.
Summary
There are a lot of VAT pitfalls for a business providing holiday lettings. But for a single site business, unless the property is large or very high end, it is likely that the income will below £90,000 and VAT can be ignored. However, it is important to monitor income and costs to establish whether:
- registration is required
- voluntary registration is beneficial (usually, but not exclusively, for major refurbishment projects).
VAT Notice 708: Buildings and construction updated
This Notice explains how to establish the appropriate VAT rate on building work and materials for contractors, sub-contractors and developers.
The construction of a new building and work to an existing building is normally standard rated. However, there are exceptions to this, inter alia:
- construction of new qualifying dwellings and communal residential buildings, and certain new buildings used by charities ― zero-rated
- conversion for a housing association of a non-residential building into a qualifying dwelling or communal residential building ― zero-rated
- alterations to suit the condition of people with disabilities ― zero-rated
- first time gas and electricity connections ― zero-rated
- conversion of a non-residential building into a qualifying dwelling or communal residential building ― reduced rate of VAT 5%
- renovation or alteration of empty residential premises ― reduced rate of VAT 5%
- installation of energy saving materials, grant funded heating system measures and qualifying security goods ― reduced rate of VAT 5%
- installation of mobility aids for the elderly for use in domestic accommodation ― reduced rate of VAT 5%
(These are just some examples; other works may also qualify for zero or reduced rating)
Amendments
Paragraph 7 (re: the conversion of premises to a different residential use) on reduced rated work has been amended at para 7.6 as there was uncertainty over the previous drafting.
Paragraph 8.4 has been revised to more accurately reflect the rules on the installation of building materials which are reduce rated.
A VAT Did you know?
Lugworms and maggots are standard rated, unless they are also suitable for human consumption, in which case they may be zero-rated – Yum.
VAT: New guidance – Online Marketplace supplies
HMRC issued new guidance for businesses which sell goods using an online marketplace on 20 June 2025. It enables online marketplace (an e-commerce site that connects sellers with buyers where transactions are managed by the website owner) operators to check if a seller is established outside the UK, so that it can establish which party is liable for VAT on sales.
Background
An online marketplace operator is liable for VAT on goods of any value that are both:
- located in the UK at the point of sale
- sold by an overseas business through the operator’s online marketplace
The operator needs to establish who is liable for VAT on sales of goods which are facilitated. To confirm this, the operator needs to take all reasonable steps to check whether a seller is established outside the UK. A business is required to keep evidence to show that it has taken all reasonable steps.
This new guidance includes details about how to check where an online marketplace seller is established and provides information about checks and process businesses can put in place. HMRC will review this evidence and will consider all evidence which has been used to establish where the seller is established. In each case, it will consider:
- what steps were performed, including any that are designed to address the risks of a particular case
- to what extent steps were appropriate, adequate and timely in relation to addressing the risks identified
- what the results of the checks indicate
- whether a business took appropriate action in response to the results
Examples of checks
HMRC give the following examples of types of checks which might be undertaken to determine if an online seller is UK-established:
- check for a UK principal place of business
- check that the VAT registration available for the seller matches their legal name and details on HMRC’s Check a UK VAT number tool
- check that the seller is registered at Companies House with a UK address
- establish whether directors reside in the UK, eg; as shown on the Companies House register
- check that payment or financial information shows a UK presence. This can include:
- UK bank or credit card details
- UK merchant address attached to the seller bank account
- other financial data provided by independent payment service providers
- check other commercially relevant information such as credit checks and other background checks from third party sources
- check that the device used by the seller has a UK IP address, or check another method of geolocation
- establish whether the seller uses a phone number with a UK country code
Overview of online sellers
More general guidance from HMRC on online sellers:
- charging VAT when using an online marketplace to sell goods to customers in the UK
- charging VAT when goods are sold if you’re an online marketplace operator
- charging VAT on goods sold direct to customers in the UK
The rules aim to avoid VAT evasion by non-UK online sellers.