UK: HMRC: Change In Policy Regarding TOGCs

Last Updated: 6 March 2013
Article by Michael Cant

Summary and implications

Following the case of Robinson Family Ltd v HMRC* HMRC have been forced to retreat from their long standing position that the grant of an overriding lease does not amount to a transfer of a going concern (TOGC).

The main points are:

  • HMRC are not intending to appeal the case.
  • A briefing note published by HMRC seeks to restrict the impact of the case.
  • HMRC acknowledge that overpaid SDLT may be repayable.

Robinson Family Ltd v HMRC

The case of Robinson Family Ltd v HMRC has determined that for VAT purposes a TOGC did occur when the claimant sold, by way of a sub-lease, its interest in property. The key points of the case are:

  • The court must look at the substance rather than the form of the transaction.
  • Where the transferee is effectively carrying on exactly the same business as the transferor then prima facie, the TOGC provisions should apply.

Professional advisers have been arguing that HMRC have been getting this point wrong for years. It is generally thought that their stubborn stance has been born out of a fear of increased VAT avoidance. Given the wealth of anti-avoidance legislation and case law it is difficult to understand exactly what they were scared of.


The sale of the assets of a VAT-registered business will be subject to VAT. A TOGC is the sale of the assets of a business as a going concern but it is not considered to be a supply of goods or of services for VAT purposes. Therefore, the normal VAT rules are disapplied and no VAT is chargeable on the consideration paid. Certain conditions must be satisfied in order to qualify for the relief. The main ones are:

  • The purchaser must intend to use the transferred assets to carry out the same type of business as the seller.
  • The assets must be sold as part of the transfer of a "business" as a "going concern".

Previously, HMRC contended that in order to qualify as a TOGC the seller of a let building had to transfer the whole of their interest in a property to the purchaser. Where the seller retained an interest, however small, and then granted a sub-interest to the purchaser HMRC argued that this constituted the creation of a new interest rather than the transfer of an existing one. Therefore, TOGC treatment did not apply.

The facts

he claimant was a family owned property development company, which purchased the head lease over land owned by Belfast Harbour Estate (BHE), the landlord. The claimant undertook a redevelopment of the site creating six new industrial units. The case concerned three units sold to a connected company, as a TOGC, by way of sub-lease leaving the claimant with a three-day reversion. It is notable that the head lease from BHE expressly prohibited an assignment of part of the land. Consequently, the transfer of units could only be effected by way of sub-lease. HMRC denied the claimant TOGC treatment for the sale on the basis that the sub-lease constituted a creation of a new asset rather than the transfer of an existing asset.

The decision

The tribunal accepted the claimant's argument that the only mechanism by which it could transfer a part of its letting business was by the grant of a sub-lease. The tribunal looked at the substance rather than the form of the transaction and held that the purchaser of the units, was carrying on exactly the same letting business as the seller. Accordingly, the TOGC provisions should apply.


Previously, HMRC's position was that the grant of an overriding lease constituted the creation of a new interest rather than the transfer of an existing one. Therefore, TOGC treatment did not apply. The decision clearly rejects this view .The key consideration is whether the purchaser is in a position to continue the activities of the seller without interruption. If the purchaser is able to do this, then the court will look at the substance of the transaction over its form. It is notable that the tribunal emphasised the fact that the only way in which the claimant could dispose of the interest was by sub-lease. This may raise potential problems for those who choose to grant a sub-lease where there is a possibility for them to assign their reversionary interest.

This case follows the earlier ECJ decision of Finanzamt Ludenscheid v Christel Schriever* and is not a surprise. Interestingly, the court in Robinson did not refer to the Schriever decision in forming its judgment.

HMRC Briefing Note

A briefing note published on 16 November 2012 has confirmed that HMRC will not be appealing the Robinson decision and it accepts that the fact that the seller retains a reversionary interest in the property does not preclude the sale from being a TOGC given that the substance of the transaction is not altered. The HMRC's current published guidance regarding creations of new assets will be updated to reflect HMRC's new position.

In the briefing note, HMRC have introduced a requirement for the retained interest to be no more than one per cent of the value of the property immediately before the transfer. There is no apparent justification for the introduction of this arbitrary figure in the case and clearly HMRC are seeking to limit the impact of their reversal. In order for a transaction to be a TOGC, at the time of the completion of the lease the Buyer must warrant that Article 5(2B) of the VAT Special Provisions Order 1995 does not apply i.e. that the Buyer's VAT option to tax will not be disapplied under complex anti-avoidance legislation. For many taxpayers, who followed HMRC's previous guidance, this wording will not have been included in the grant of an overriding lease. However, to their credit HMRC have clarified that provided each party can satisfactorily evidence at the time of the transaction that notification could have been given then HMRC will accept that the legal requirement has been complied with.

Conclusion and what happens next...

There are undoubtedly a number of taxpayers who have paid a significant amount of SDLT on VAT which they will want to reclaim. It remains to be seen whether the publication of the briefing note will open the gates to an influx of claims seeking TOGC treatment and consequently repayment claims for SDLT. HMRC have stated that they will be providing further guidance on whether an adjustment can be made to the SDLT already paid. However, prompt action to recover overpaid SDLT should now be taken.

HMRC is currently reviewing its policy on whether a surrender of a lease is eligible for TOGC treatment. Further guidance is expected by the end of the year.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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