Charities & TOGC
I have come across several situations this year where I have had to consider the TOGC rules in relation to charities. The two typical scenarios are:
- Where a charity wishes to change its legal status, for example, from a charitable trust to a charitable incorporated organisation (CIO); and
- Where two charities merge, such that the activities of one are absorbed into the other.
I am sure there are other scenarios.
We usually think of the transfer of a going concern (TOGC) in relation to a business transferring to a new owner. There are a set of questions to be determined to confirm the position either way. If the transferor charity is not in business and not liable to be registered for VAT, then the TOGC rules are, for the purpose of this article, not relevant. However, that is not always the case.
The key legislation is the VAT (Special Provisions) Order, SI 1995/1268, art 5(1)(b)(iii) which states; “in a case where the transferor is a taxable person…” A “taxable person” is a person (natural person or legal person) who is either registered for VAT or required to be registered for VAT.
There is a corresponding provision in VAT Act 1994, Sch 1, para 1(2); “where a business … carried on by a taxable person is transferred to another person as a going concern, … the transferee becomes liable to be registered under this Schedule…” This requires the transferee to take into account the value of taxable supplies made by the transferor in the previous twelve months to determine whether it should be registered for VAT.
In practice, therefore, advisers should ask the TOGC questions so that the Trustees can be confident that that there is no VAT liability lurking somewhere. One transferor charity I advised had some historic VAT issues, such that the transferee charity had a potential requirement to register for VAT in the event of a TOGC.
[HMRC Notice 700/9, para 1.4 provides the list of questions to be determined. Notice 700/1, para 3.8 explains how the VAT registration rules interact with the TOGC rules.]
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Hi, I am a VAT Consultant, part of the team at vatadvice.org We are based in Cambridgeshire. We work largely with charities but also advise a range of commercial organisations.
I have over 30 years experience in VAT, and am currently also a part-time member of the Tax Tribunals.