HMRC have revised their VAT position relating to the transfer of a going concern, following the decision in Robinson Family Ltd (TC2046).
The department had previously interpreted the law as meaning the interest in land being transferred must be the same interest as that used by the transferor in a business for there to be the transfer of a property rental or property development business as a going concern.
If what was transferred was less than the transferor's full interest in the land, it followed that the retained interest would prevent there having been the transfer of a property business as a going concern.
In Robinson Family, the First-tier Tribunal disagreed with the interpretation by the Revenue – which will not appeal the decision.
The tribunal found that although the taxpayer company retained a headlease in a transaction, a distant interest in a three-day reversion in no way altered the substance of the transaction, which was to put the transferee business in a position in which it was able to continue the previous lettings business of the company.
HMRC now accept that retention of small reversionary interest by the transferor of a property rental business does not prevent the transaction from being treated as a transfer of a going concern for VAT purposes.
The Robinson Family decision does not alter any other areas of the taxman's policy on transfers of a going concern, but officials are reviewing the view on whether or not the surrender of an interest in land can sometimes result in such a transfer.
They are also examining whether properties used in a business other than property letting are affected by the change of VAT policy.
The Revenue will accept that a reversion retained by the transferor is sufficiently small for transfer of a going concern treatment to be capable of applying, if the value of the interest retained is no more than 1% of the value of the property immediately before the transfer (disregarding any mortgage or charge).
Where more than one property is transferred at one time, the test should be applied on a property by property basis, rather than for the entire portfolio.
The taxman will regard interest retained by the transferor representing more than 1% of the value of the property as strongly indicative that the transaction is too complex to be a transfer of a going concern.
There are two questions to address with regard to past transactions when taxpayers wish to claim transfer of a going concern treatment retrospectively on account of the outcome of Robinson Family, HMRC add in their explanation of their new VAT position, outlined in Revenue & Customs Brief 30/12.
With regard to the relevant notification that an option to tax will not be rendered ineffective, if the parties can show that article 5(2B) of the VAT (Special Provisions) Order 1995 did not apply at the time of the transaction and thus the requisite notification could have been given, the Revenue will accept that the legal requirement has been complied with.
And there remains the question of whether an adjustment can be made to the stamp duty land tax (SDLT) already paid; officials are considering the point, and plan to provide further guidance soon.
Grant Thornton’s national head of indirect tax, Lorraine Parkin, welcomed HMRC’s new interpretation, calling it “good news for any business that has either accounted for VAT on the transfer of a property business in circumstances where the new policy would have meant that no VAT was due, or has paid stamp duty land tax on a VAT inclusive price when VAT should not have been charge”.