HMRC previously held the view that the purchase of a business by a VAT group member who only made supplies of the acquired business to other members of the VAT group could not be treated as a TOGC for VAT purposes. This is because it viewed the purchased business activities as being consumed within the same entity.
However, the Upper Tribunal decision in Intelligent Managed Services Limited  UKUT 341 overruled this view and stated that, provided that the VAT group members who receive the supplies of acquired businesses make supplies outside the VAT group, then the acquisition of the business was a TOGC for VAT purposes.
This ruling also affects the converse position. Therefore the transfer of a business with supplies solely to other VAT group members, can now also be treated as a TOGC subject to the normal TOGC rules.
There will now be cases whereby businesses will have paid excessive SDLT on the basis that SDLT was paid on the VAT inclusive rather than the VAT exclusive price. If any client believes that it may have overpaid SDLT as a result of paying VAT on the acquisition of a business, which should have been treated as a VAT-free TOGC, there is likely to be scope for making a reclaim.
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