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You should always consider whether what has been transferred is a business activity in the VAT sense. As at VTOGC2050, if it is not a business, there cannot be the transfer of a business (as a going concern), so the TOGC provisions do not apply. Examples of non-business activities are those carried on by regulatory bodies in consequence of their statutory obligations, for example, a local council. An example of this arose in the Peddars Way Housing Association (LON/93/2649A).

The Peddars Way case essentially concerned council housing that it had acquired from the local authority. To win their case they needed to establish that a TOGC had taken place the effect of which was to put them in the same position as the local authority. Its argument was based on an interpretation of Article 5.8 of the EU 6th Directive. It lost on this point alone, but the tribunal held in any case that although both rent homes to tenants, the council and the housing association do not carry out the same kind of business within the same constraints. The housing association for example, had no statutory duty to house the homeless nor are its funds 鈥渞ing-fenced鈥� to the same extent.

Another case that turned on whether the assets transferred constituted a 鈥榖usiness鈥� was Royal College of Paediatrics and Child Health (and 1 other) [2015] UKUT 0038 (TCC). In this case, the college, which is partial exempt for tax purposes, wanted to purchase a building that it intended to occupy itself and at the same time move across its tenants from the existing premises that it owned. Prior to the purchase it arranged with the vendor to enter into a lease agreement with one of the prospective tenants, on the understanding that the building would be sold to the college which would in turn resume its role as the tenants鈥� landlord. The College maintained that this transaction was a TOGC because it was purchasing, and would continue to operate, a property letting business.

In finding that the transaction was not a TOGC, the Chairman said

'鈥橧f the sale of the Property had been simply a transfer of the freehold and nothing else then I cannot see how it could possibly be a transfer of a going concern. Something else had to be transferred as well as the property and that further element has to have the appropriate characteristics. In a normal case of the transfer of a freehold, no doubt it is enough for the extra element to be a transfer of a lease to a tenant or even an agreement with a putative tenant to do so. As long as that lease which is transferred (or the agreement) can truly be said to have been part of the seller鈥檚 business then the requirements of the law will be satisfied. Normally I suppose it will be. However here the agreement for a lease was not part of the seller鈥檚 business at all. The putative tenants were never part of Coleridge鈥檚 business, they came from the purchaser. The agreement arose directly from and was simply part of the sale transaction. No part of seller鈥檚 business was transferred to the buyer. For this reason the transfer was not a transfer of a going concern.鈥欌€�(Emphasis added)

The term 鈥渂usiness鈥� is defined in s94 VAT Act 1994 as including 鈥渁ny trade, profession or vocation鈥�. The HMRC view is expressed in Notice 700 鈥淭he VAT Guide鈥� Section 4.6 which says:

鈥淚n VAT terms, business means any continuing activity which is mainly concerned with making supplies to other persons for a consideration. The activity must have a degree of frequency and scale and be continued over a period of time. Isolated transactions are not normally business for VAT purposes鈥�

The term 鈥渂usiness鈥� should be interpreted consistently with the Principal VAT Directive term of 鈥渆conomic activity鈥� (Article 9):

鈥淎ny activity of producers, traders and persons supplying services, including mining and agricultural activities and activities of the professions, shall be regarded as 鈥榚conomic activity鈥�. The exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis shall also be considered an economic activity.鈥�

Further guidance on the meaning of business can be found in the VAT Business/Non-business Manual.