VAT considerations when selling a business
Selling a business is a major milestone, but VAT is an area that is often overlooked until late in the process. The structure of a transaction can result in differing VAT treatments, potentially with a significant impact on both the buyer and the seller, affecting cashflow, transaction cost and can have commercial and practical implications.
Two common ways to sell a business are:
- an asset sale, which may qualify as a Transfer of a Going Concern (TOGC), or
- a share sale, where ownership of the company changes hands.
Understanding the VAT implications of each route early on can help avoid unexpected VAT costs, delays to completion and post‑transaction disputes.
Why VAT matters in a business sale
VAT does not apply in the same way to all disposals. Depending on how the sale is structured:
- VAT may be chargeable,
- The transaction may be outside the scope of VAT, or
- The disposal may be exempt from VAT, leading to restrictions on input VAT recovery.
The chosen structure can therefore influence:
- the final purchase price,
- whether the buyer needs additional funding for VAT, and
- how much VAT each party can recover.
Early VAT planning is essential, particularly where property, goodwill or regulated activities are involved.
Asset sales and TOGC – understanding the difference
What is a TOGC?
A Transfer of a Going Concern is a specific VAT treatment where a business (or part of a business) is transferred as a live, trading operation from seller to buyer.
If the conditions are met, the sale is treated as outside the scope of VAT, meaning:
- no VAT is charged on the assets transferred, and
- there is no immediate VAT cost for the buyer.
Key conditions for TOGC treatment
HMRC requires certain criteria to be met, including:
- the buyer intends to continue running the same kind of business,
- assets transferred are sufficient to operate the business,
- If the seller is VAT registered the buyer is also VAT‑registered (or becomes registered as a result of the transfer), and
- any relevant property elections (such as an option to tax) are handled correctly and in a timely manner.
If any condition is missed, the TOGC treatment may fail - resulting in VAT being due.
Common TOGC pitfalls
- Property and option to tax issues – if property is included but the buyer has not opted to tax in a timely manner, VAT may unexpectedly apply.
- Partial TOGCs – where only part of a business is sold, it can be unclear whether enough assets have transferred to constitute a going concern.
Share sales – VAT treatment explained
In a share sale, the buyer purchases shares in the company rather than its assets. The company itself continues to trade as before, just with a new owner. Share sales are exempt from VAT. However, it is important to note that input VAT in relation to such a sale is restricted, therefore increasing the cost base for the seller.
VAT incurred on professional fees (legal, corporate finance, due diligence) may be irrecoverable because:
- costs are linked to an exempt supply (the sale of shares), or
- they are seen as costs of the shareholder, not the trading business.
TOGC vs share sale – a VAT comparison
Area | TOGC (Asset Sale) | Share Sale |
|---|---|---|
VAT on sale | Outside the scope of VAT (if conditions met) | Exempt from VAT |
Buyer VAT funding | No VAT upfront if TOGC applies | Not applicable |
VAT recovery on fees | Often recoverable (subject to use) | Often restricted or blocked |
Complexity | Detailed conditions must be met | Simpler VAT treatment |
Property considerations | High risk if not structured correctly | Property remains in company |
Property and VAT – a critical factor
Where property is involved, VAT risk increases significantly.
Key issues include:
- Option to tax elections made by the seller,
- whether the buyer intends to use the property for taxable activities, and
- anti‑avoidance rules, such as the capital goods scheme/disapplication of the option to tax.
Clear contractual terms
Clear and precise contractual terms are critical to managing VAT risk and avoiding disputes between buyer and seller. In particular, both parties should ensure the agreement clearly sets out the intended VAT treatment of the transaction and the consequences if that treatment is not achieved. For example, where a TOGC is expected but the conditions are not ultimately met, the contract should make clear that VAT will become chargeable and that the buyer will be required to pay this VAT upon receipt of a valid VAT invoice. Without this clarity, unexpected VAT liabilities can arise post-completion, impacting cash flow and potentially leading to renegotiation or dispute. Early alignment on VAT clauses can therefore protect value and provide certainty for both sides.
Practical steps before you sell
If you are considering selling your business, it is important to:
- review your VAT position early in the process,
- understand how the deal structure affects VAT recovery,
- identify any VAT risks relating to property or partial disposals, and
- ensure legal agreements contain robust VAT clauses.
VAT advice should run alongside legal and corporate finance advice - not as an afterthought.
We’re here to help
There is no one‑size‑fits‑all approach when selling a business. A TOGC can offer significant VAT advantages, but only if the strict conditions are met. A share sale may look simpler, but restricted VAT recovery on costs can make it more expensive than expected.
Getting clear VAT advice early can protect value, prevent delays and ensure there are no unwelcome surprises on completion.
Our VAT specialists can guide you through:
- Reviewing sale structure
- Understanding VAT treatment of assets, stock, goodwill and property
- Ensuring buyer and seller VAT compliance
- Preparing documentation for HMRC
- Avoiding VAT errors that delay or derail deals
If you’re planning a sale, contact our VAT specialists today to ensure your VAT position is optimised from the start and your deal is structured in the most efficient way.
