Is the primary statutory cite for TOGC VATA 1994 section 49 or SI 1995/1268 Article 5?

SI 1995/1268 Article 5. The operative provision treating a TOGC as 'neither a supply of goods nor a supply of services' is Article 5 of the Value Added Tax (Special Provisions) Order 1995, made under powers in the Value Added Tax Act 1994. Section 49 of VATA 1994 (verbatim heading 'Transfers of going concerns') is the registration-and-continuity provision: it governs the transferee's registration position after a TOGC, treating the transferee as having carried on the business before as well as after the transfer for registration-threshold purposes. The two provisions work together but the operative TOGC rule that takes the sale outside the scope of VAT is in Article 5. Sessions citing only VATA 1994 s.49 as the TOGC operative cite are partially correct (s.49 enables the regulation-making power and the registration-continuity framework) but miss the actual operative provision that produces the no-VAT outcome.

What is 'the relevant date' for option-matching under Article 5?

Article 5(3) defines it as 'the date upon which the grant would have been treated as having been made or, if there is more than one such date, the earliest of them'. In practice the relevant date is the VAT tax point on the property supply, which is the earlier of the date the supply takes place (typically completion) and the date any payment is made (any pre-payment, deposit applied as consideration, or part-payment before completion). The relevant date is NOT necessarily completion; it can be earlier where contractual deposit arrangements bring the tax point forward. Where a buyer pays a non-refundable deposit on exchange that is treated as part-payment of the consideration, the tax point shifts to exchange, and the option-matching must be done by exchange not completion. This is the single most-misunderstood point on the option-matching deadline and is the source of most failed TOGCs on commercial-property deals with deposit structures.

How is the transferee's option-to-tax notified for TOGC purposes?

By the transferee filing form VAT1614A ('Tell HMRC about an option to tax land and buildings') with HMRC, with the effective date of the transferee's option no later than the relevant date. The 30-day notification window that ordinarily applies to a VAT1614A is compatible with TOGC option-matching: the transferee can decide to opt 30 days before the relevant date (the typical pre-completion timeline), file VAT1614A within that 30-day window, and obtain HMRC's acknowledgement before completion. Where the transferee is not already VAT-registered, registration must also be completed (or be required to complete) by the relevant date. Article 5(2A) also requires the transferee to give written notification to the transferor that paragraph (2B) (the paragraph 5/6/12 disapplication exclusions) does not apply to the transferee. The written notification is separate from the VAT1614A and is a transferee-to-transferor communication, not an HMRC filing.

Does paragraph 12 of Schedule 10 disapply TOGC treatment even where option-matching has been done?

Yes, where the conditions of paragraph 12 are met. Article 5(2B) excludes from TOGC treatment supplies where the transferee's onward supplies of the property would be subject to paragraph 12 disapplication (developers of exempt land anti-avoidance). The condition is concerned with the transferee's onward use position, not just the seller's. A transferee opting to tax and notifying HMRC by the relevant date but who is or becomes a developer of exempt land within the paragraph 12 anti-avoidance scope cannot rescue the TOGC treatment by the option-matching alone. The transferee's written notification to the transferor under Article 5(2A) must specifically confirm that paragraph (2B) does not apply: the notification operates as the transferee's declaration that the paragraph 12 conditions are not met. False notification exposes the transferee to direct HMRC enforcement; the transferor retains TOGC treatment provided the notification was received in good faith. The companion C7 disapplication paragraph-walk page covers paragraph 12 in distinction from paragraphs 5 and 6.

What is the same-kind-of-business test for property TOGCs?

The Article 5 condition that 'the assets are to be used by the transferee in carrying on the same kind of business' applied to a commercial-property sale means the transferee must continue the commercial letting business in some form. The paradigm satisfied case is the sale of a fully-let commercial multi-let office building from one commercial landlord to another: the leases continue uninterrupted, the rental income continues to flow, the tenant covenants are unaffected by the change of landlord, and the transferee steps into the transferor's letting position. The case is harder where the property is vacant at completion: the transferee may argue the business is being acquired with a marketed-to-let position, but the same-kind-of-business test is not met where the property is bought for owner-occupation, residential conversion, or held with no letting intent. Mixed-use properties require analysis on the commercial element: the commercial part can be a TOGC even where the residential part is not, with apportionment on the consideration.

What is the SDLT impact of a successful TOGC?

SDLT is calculated under FA 2003 s.51 on the chargeable consideration, which excludes VAT not actually chargeable. A successful TOGC means no VAT is charged on the property transfer, so the SDLT base is the net-of-VAT consideration. For an opted commercial property selling for £5m plus a hypothetical £1m of VAT, the SDLT base after a successful TOGC is £5m (not £6m); the SDLT bill at the 5% top non-residential rate above the £250,000 threshold is approximately £237,500 (versus approximately £287,500 on a £6m VAT-inclusive base). The £50,000 SDLT saving is the primary economic benefit alongside the £1m cashflow benefit on the VAT. For a £20m commercial portfolio with a 20% VAT addition, the SDLT saving alone is approximately £200,000 plus the £4m cashflow benefit on the VAT.

Pemberton Holdings worked example: what is the failure cost of late option notification?

Pemberton Holdings Limited (anonymised commercial buyer) agrees to acquire a £5m opted multi-let office building from Sutherland Properties LLP (anonymised vendor). The deal is structured as a TOGC. Pemberton's VAT advisers file the VAT1614A for the option-matching on Day T-21 before the relevant date; HMRC acknowledges Day T-7. Exchange happens Day T-10 with a £500,000 deposit treated as part-payment of consideration (this brings the tax point forward to exchange, not completion). The relevant date is therefore Day T-10 (exchange), not Day T-0 (completion). HMRC's acknowledgement was Day T-7, which is 3 days after the relevant date. Option-matching has FAILED by 3 days. TOGC is unavailable. Result: Sutherland charges £1m of output VAT on the £5m sale price; SDLT base for Pemberton is £6m not £5m, costing approximately £50,000 of additional SDLT; cashflow VAT of £1m is paid by Pemberton at completion and recovered through Pemberton's quarterly VAT return (typically 6-12 weeks later). FA 2007 Schedule 24 penalty exposure is reasonable-care-based: where both parties relied on advisers and the issue was deposit-structure-overlooks-tax-point timing, penalty is typically nil or low. The cashflow loss and SDLT cost are nevertheless live. Pemberton's structural cure (next deal): file VAT1614A and obtain acknowledgement before exchange, not before completion.

Does TOGC apply to a sale of bare land or a vacant building?

Generally no for bare land never put to commercial use; mixed picture for vacant commercial buildings. The same-kind-of-business test under Article 5 requires the transferee to continue the transferor's business. A landlord selling a vacant freehold commercial unit that has been actively marketed to let but is currently between tenants can argue TOGC where the marketing campaign is genuine and the transferee continues that campaign post-completion; HMRC's Notice 700/9 paragraph 2.4.1 supports this on the right facts. A landlord selling a vacant freehold commercial unit that has never been let, with no marketing position and no rental income history, is materially harder to TOGC: there is no continuing business for the transferee to continue. Bare land with no commercial activity falls outside TOGC entirely; the sale is a standard land supply (exempt under Schedule 9 Group 1 absent any option, or taxable under any seller's option to tax). Part-let buildings raise apportionment questions: the let portion may qualify as a TOGC while the vacant unlet portion does not, requiring separate accounting on the consideration.

What records should both parties keep to defend a property TOGC at later HMRC enquiry?

Five categories of contemporaneous records. First, statutory framework: the executed sale contract evidencing transfer of the business as a going concern with TOGC indemnity drafting; any pre-completion correspondence between the parties referring to TOGC. Second, condition evidence: the tenancy schedule at completion showing the let position; rent receipts to evidence the rental business pre and post-completion; any marketing correspondence on vacant elements. Third, transferee VAT position: the transferee's VAT registration certificate; the transferee's VAT1614A and HMRC acknowledgement with date-stamps. Fourth, written notification: the transferee's written notification to the transferor confirming paragraph (2B) does not apply (the paragraphs 5/6/12 declaration). Fifth, completion-to-post-completion continuity: lease assignments or notices to tenants of the change of landlord; the transferee's first VAT return covering the post-completion period with output VAT on the rents. Records must be retained for at least 6 years from the end of the relevant VAT period; in practice retain for the full Capital Goods Scheme adjustment period (10 years from the relevant capital expenditure) to defend any subsequent CGS adjustment.

Can the parties choose to ignore TOGC and charge VAT anyway?

No. TOGC is mandatory where the conditions are met. Where the Article 5 conditions are satisfied, the transaction is automatically outside the scope of VAT and the transferor must not charge output VAT. A transferor who incorrectly charges VAT on a transaction that satisfies the TOGC conditions has output VAT in their VAT return that should not have been declared; the transferee paying that VAT has no input-tax recovery (there was no taxable supply to recover input tax on). HMRC will reclaim the wrongly-declared output VAT from the transferor; the transferee's wrongly-paid VAT is a contractual claim against the transferor, not an input-VAT recovery from HMRC. The mandatory-outside-scope position is one of several reasons commercial-property TOGC clauses typically include a comprehensive indemnity covering both directions: vendor indemnifies purchaser against the TOGC failing (output VAT chargeable retrospectively), purchaser indemnifies vendor against the TOGC succeeding when vendor had assumed VAT chargeable.

How does TOGC interact with the Capital Goods Scheme on a commercial property?

The transferee steps into the transferor's CGS position. SI 1995/2518 regulation 116 provides that where a TOGC occurs in respect of an asset within the Capital Goods Scheme (capital expenditure on land or buildings of £250,000 or more, VAT-exclusive), the transferee assumes the transferor's CGS adjustment position from the disposal interval onward. The transferor makes a final adjustment for the interval of disposal; the transferee picks up the remaining intervals at the use-proportion applicable to the transferee's onward use. This continuity is one of the structural benefits of TOGC: the transferor avoids a single large CGS adjustment on disposal; the transferee inherits a reduced-recovery-history asset but with future adjustments running against the transferee's actual use. Where the transferee's use shifts toward exempt supplies after completion (e.g. let to a substantially-exempt occupier), the CGS clawback runs against the transferee's adjustments, not the transferor's prior recovery. The transferee's VAT1614A and the TOGC matching are conditions; the CGS continuity is the operational consequence.

Where do I find the option-to-tax framework, the revocation routes, and the paragraph 12 disapplication walk?

Three companion pages. The option-to-tax framework pillar covers the architectural decision, the 20-year lock, the opter-vs-property binding distinction, the real estate election, and the prior permission regime at paragraphs 28 to 30. The revocation routes page walks the four exit routes in depth: cooling-off under paragraph 23, six-year-no-relevant-interest under paragraph 24, twenty-year under paragraph 25, and the disapplication-not-revocation contrast on paragraphs 5 and 6. The dedicated disapplication paragraph-walk covers paragraphs 5 (automatic dwellings), 6 (recipient-certified residential), and 12 (developers-of-exempt-land anti-avoidance) in distinction-by-paragraph form. The introductory TOGC overview page covers the five general conditions in summary; this page is the option-matching depth that the overview does not reach. All four pages are part of the same Wave 8 Bucket C VAT cluster.

Incorporation & Company Structures

TOGC on Commercial Property: The Option-Matching Trap, the Relevant-Date Deadline, and the Pre-Completion Sequence That Determines Whether a £5m Sale Carries £1m of Output VAT

25 May 2026 · Property Tax Partners Editorial Team · 12 min read

A transfer of a going concern under SI 1995/1268 Article 5 takes the sale of a commercial-property letting business outside the scope of VAT entirely. The operative cite is SI 1995/1268 Article 5, not VATA 1994 s.49 (which governs registration continuity, a common drift catch); the most-failed condition is the property-specific option-matching requirement at Article 5(2A); the deadline is the 'relevant date' defined in Article 5(3) as the date the grant would have been treated as having been made (typically the tax point, the earlier of the supply date or any pre-payment, often before contractual completion); and the failure cost on an opted £5m commercial property is £1m of output VAT plus £50,000 of additional SDLT plus interest and penalty risk under FA 2007 Schedule 24. This page walks the statutory framework, the pre-completion sequence in calendar form, the written-notification-to-transferor requirement on paragraphs 5/6/12 disapplications, the paragraph 12 anti-avoidance exclusion that bars TOGC even where option-matching has been done, and the Pemberton Holdings 3-day-late notification worked example. Companion to the existing TOGC overview page and the option-to-tax cluster (C1 framework, C2 revocation routes).

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A close-up of two hands shaking over a property contract, representing completion of a commercial property TOGC

The clean economic case for a commercial-property TOGC reads simply: no 20% output VAT on the sale price, no cashflow drag through the purchaser's VAT registration, lower SDLT base (excluding the VAT that did not arise), CGS continuity instead of a single disposal adjustment. The clean case turns into a £1m output VAT bill and a £50,000 SDLT uplift the moment the option-matching deadline is missed by even a single day. This page is the operational depth on the option-matching condition, the most-failed condition in commercial-property TOGCs and the one the general-purpose TOGC explainers most often summarise but do not walk in calendar form.

Companion to our existing TOGC and VAT on property letting businesses overview page, which covers the five general conditions in summary form. Companion also to the option-to-tax cluster: the option to tax framework pillar covers what an option to tax is and what binding the opter for 20 years means; the option to tax revocation routes page walks the four exit routes. This page sits between them: TOGC is the most common end-of-life event for an opted commercial property, and option-matching is the bridge between Schedule 10 and Article 5.

The statutory source and the common drift catch

The operative TOGC provision is Article 5 of the Value Added Tax (Special Provisions) Order 1995 (SI 1995/1268). Article 5(1) treats a qualifying transfer as 'neither a supply of goods nor a supply of services'; the transfer is outside the scope of VAT entirely, not a zero-rated supply, not an exempt supply, simply not a supply at all for VAT purposes.

The common drift catch is to cite VATA 1994 section 49 as the operative TOGC provision. Section 49 (verbatim heading 'Transfers of going concerns') is the registration-and-continuity provision: it governs the transferee's registration position by treating the transferee 'as having carried on the business or part of the business before as well as after the transfer' for the purpose of determining whether the transferee is liable to be registered (s.49(1)(a)). Section 49 enables HMRC to make regulations preserving liabilities, duties, and record-keeping obligations across a TOGC (s.49(2) to (6)). It is not the provision that produces the no-VAT outcome on the transfer itself; that is Article 5 of the Special Provisions Order.

Both citations have a role on a TOGC page. The architectural cite is Article 5; the registration-continuity cite is section 49. Sessions that cite only section 49 are partially correct (the registration-continuity framework is real and statutorily anchored in s.49) but miss the actual rule producing the no-supply outcome.

Option-matching: the property-specific condition at Article 5(2A)

The general TOGC conditions at Article 5(1) apply to all transfers of going concerns: same-kind-of-business use by the transferee; transferee is or immediately becomes a taxable person; no significant break in trading. For transfers of an interest in land or buildings where the transferor has opted to tax, Article 5(2A) imposes two additional property-specific conditions that operate as a property-only overlay on the general conditions.

The two property-specific conditions:

The transferee must exercise an option to tax over the relevant interest in the land, with effect from a date that is not later than the relevant date, and must give written notification of that option to HMRC in accordance with paragraph 20 of Schedule 10 (this is the standard VAT1614A notification within 30 days of decision).
The transferee must notify the transferor in writing that paragraph (2B) does not apply to the transferee. Paragraph (2B) is the exclusion provision that bars TOGC where the transferee's onward supplies would be subject to disapplication under Schedule 10 paragraphs 5 (dwelling automatic), 6 (recipient-certified residential), or 12 (developers-of-exempt-land anti-avoidance).

Both conditions must be satisfied. A transferee who has notified its option to tax HMRC but has not given the written notification to the transferor has failed the second limb; the TOGC fails on the property-specific overlay even though general conditions are met. A transferee who has given written notification to the transferor but whose VAT1614A is filed after the relevant date has failed the first limb. The conditions are conjunctive.

The written notification to the transferor is operationally important and frequently overlooked. It is a transferee-to-transferor declaration, in writing, that the transferee's onward supplies of the property are not within paragraph (2B). The declaration operates as the transferor's evidence that paragraph 12 anti-avoidance is not engaged on the transferee's side. Where the declaration is later shown to be false, the transferor is generally protected provided the notification was received in good faith; the transferee bears the HMRC enforcement risk on the false declaration.

The relevant date: Article 5(3) and the tax-point trap

'The relevant date' is defined at Article 5(3) of the Special Provisions Order. The verbatim text: 'the relevant date means the date upon which the grant would have been treated as having been made or, if there is more than one such date, the earliest of them'. The relevant date is the VAT tax point on the property supply.

The VAT tax point on a property supply is the earlier of:

the date the supply takes place (typically the date of legal completion of the sale and transfer of possession);
the date any payment is made in respect of the supply (any deposit treated as part-payment of the consideration, any pre-payment, any instalment).

The single most-misunderstood point on option-matching is that the relevant date is not necessarily completion. Where the parties contract on exchange with a non-refundable deposit treated as part-payment of the purchase price, the tax point shifts forward to exchange. The relevant date moves with it. The transferee's VAT1614A must be filed and HMRC's acknowledgement received before exchange, not before completion.

Different deposit structures produce different tax-point outcomes. A refundable deposit held by solicitors as stakeholders pending completion is generally NOT a payment of consideration for VAT purposes (the deposit is held against breach and is refundable in the ordinary course); the tax point remains completion. A non-refundable deposit released to the vendor or applied as part-payment shifts the tax point to the date of the deposit. Drafting matters: the same headline £500,000 deposit can be tax-point-neutral or tax-point-accelerating depending on how it is held and when it is released. Sessions advising on commercial property TOGCs should review the deposit structure at term-sheet stage, not at exchange.

The pre-completion sequence in calendar form

The operational sequence on a typical commercial-property TOGC, working backward from the relevant date:

Step	Owner	Timing (working backward from relevant date)	Why
Confirm transferee VAT registration status	Transferee	T minus 60 days	If not already registered, registration must be active or immediately effective from the relevant date
Transferee internal decision to opt to tax	Transferee	T minus 45 days	Documented board minute or written decision; effective date stated as the planned relevant date or earlier
File VAT1614A with HMRC	Transferee	T minus 30 days	30-day window from decision is standard; HMRC processing typically 7 to 14 working days
Receive HMRC acknowledgement	Transferee	T minus 15 days	Acknowledgement evidence is the transferor's proof of valid option at completion
Issue written notification to transferor on para (2B) declaration	Transferee	T minus 7 days	The Article 5(2A)(b) declaration that paras 5/6/12 do not apply to the transferee's onward use
Pre-completion review of deposit structure for tax-point determination	Both parties	T minus 7 days	Confirms whether the tax point is exchange (deposit applied as part-payment) or completion
Relevant date (tax point)	Both parties	T zero	Both limbs of Article 5(2A) must be satisfied by this point; TOGC operative from now

The 60-day lead-time may sound generous but compresses substantially in practice. Commercial-property deals frequently move from term-sheet to exchange in 4 to 6 weeks; option-matching needs to be in the critical-path planning from the start. Transferee VAT registration takes 4 to 6 weeks where not already registered; VAT1614A HMRC processing has historically run from 5 days to 30 days depending on HMRC workload. Building 30 working days of slack between the option decision and the tax point is the practical discipline.

The paragraph 12 anti-avoidance exclusion

Article 5(2B) excludes from TOGC treatment supplies where, after the transfer, the relevant land would be subject to the disapplication of the option to tax under any of paragraphs 5, 6, or 12 of Schedule 10 in respect of any future grant by the transferee. The exclusion operates in addition to the option-matching requirement at Article 5(2A); both must be navigated.

Paragraphs 5 (verbatim heading 'Dwellings designed or adapted, and intended for use, as dwelling etc') and 6 (verbatim heading 'Conversion of buildings for use as dwelling etc') are property-status-based and recipient-intent-based disapplications respectively. Where the transferee intends a residential or relevant-residential use of the property after the transfer, paragraphs 5 or 6 disapply the option on the transferee's future supplies; Article 5(2B) then bars TOGC because the option-matching produces no operative effect on the disapplied supplies.

Paragraph 12 (verbatim heading 'Developers of exempt land') is the anti-avoidance disapplication targeting cases where the transferee is a developer of exempt land and the transferee's connected occupier (or connected use) is substantially-exempt. Where the transferee meets the paragraph 12 anti-avoidance test on its onward use, Article 5(2B) bars TOGC. The companion disapplication paragraph-walk page covers paragraphs 5, 6, and 12 in distinction-by-paragraph form, including the connected-party 80%-recovery test that operationalises paragraph 12.

The Article 5(2A)(b) written notification from transferee to transferor operates as the transferee's declaration that none of paragraphs 5, 6, or 12 applies. Where the declaration is true on the facts, TOGC is available; where the declaration is false, the transferor retains TOGC treatment if received in good faith but the transferee faces HMRC enforcement on the false declaration. The structural moral: transferees considering an onward residential conversion or a connected-substantially-exempt let cannot rescue TOGC by clever option-matching; the paragraph (2B) declaration cannot truthfully be made and the TOGC simply fails.

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Failure-consequence worked example: Pemberton Holdings 3-day-late acknowledgement

Pemberton Holdings Limited (anonymised commercial buyer) agrees to acquire a multi-let office building from Sutherland Properties LLP (anonymised vendor) for £5,000,000 plus VAT (or net £5,000,000 if TOGC). The property is currently let to four corporate tenants; the rental business will continue uninterrupted in Pemberton's hands. Sutherland's option to tax has been in force since 2012 (13 years); Pemberton intends to opt and continue the taxable letting position. The deal is structured for TOGC.

Term sheet signed in early September. Exchange contemplated for early October with a 10% deposit (£500,000), completion early November.

Pemberton's deposit is non-refundable and is released to Sutherland on exchange to be applied as part-payment of the purchase price on completion. The deposit is therefore a payment of consideration for VAT purposes; the tax point on the property supply shifts forward from completion (early November) to exchange (early October). The relevant date for option-matching purposes is exchange, not completion.

Pemberton's VAT advisers, working to a completion-based timeline, file VAT1614A on Day T minus 21 before completion. HMRC acknowledges Day T minus 7 before completion. The acknowledgement arrives 3 days after exchange (the actual relevant date). Both limbs of Article 5(2A) are checked:

Option-matching deadline. VAT1614A acknowledgement was received 3 days after the relevant date. Article 5(2A)(a) fails: the option was effective from the date stated in the VAT1614A, but HMRC acknowledgement is the practical evidence of valid notification, and HMRC's view in Notice 700/9 is that notification must be received by the relevant date.
Written notification to vendor. Pemberton's written declaration that paragraph (2B) does not apply was issued to Sutherland Day T minus 7 before exchange. Article 5(2A)(b) is satisfied. But the conjunctive nature of Article 5(2A) means failure on (a) defeats the whole property-specific overlay regardless of (b).

The TOGC fails. The economic consequences:

Output VAT. Sutherland charges £1,000,000 output VAT on the £5,000,000 supply at 20%. Sutherland accounts for the £1,000,000 in its quarterly VAT return covering the period of completion.
Input VAT for Pemberton. Pemberton pays the £1,000,000 VAT at completion and recovers it through its own VAT return covering the period of completion. Cashflow drag of approximately 6 to 12 weeks between payment and recovery; the absolute economic loss on input VAT is interest on £1,000,000 for that 6 to 12 weeks (approximately £8,000 to £18,000 at typical short-term rates).
SDLT. Pemberton's SDLT base is now the VAT-inclusive £6,000,000 not the £5,000,000. At commercial SDLT rates above the £250,000 threshold (5%), the £1,000,000 VAT addition costs an additional £50,000 of SDLT. Pemberton pays SDLT on £6,000,000 base; the SDLT charged is approximately £287,500 instead of £237,500.
Penalty risk. FA 2007 Schedule 24 inaccuracy penalty is reasonable-care-based. Where the failure was the parties' overlooked-deposit-structure-affecting-tax-point timing rather than a careless or deliberate misstatement, HMRC will typically accept reasonable care was taken and no penalty applies. Where the failure was sloppy advisory work, a careless inaccuracy penalty of up to 30% of the under-declared VAT may bite (although in TOGC failures the under-declared VAT is paid promptly by the vendor and recovered promptly by the purchaser, mitigating the penalty exposure).

The headline economic cost of the 3-day-late acknowledgement is the £50,000 of additional SDLT plus the £8,000 to £18,000 cashflow drag, plus advisory time spent unwinding the failure. The cost is not catastrophic on a £5,000,000 deal but is material; on a £50,000,000 transaction with the same proportional structure the additional SDLT alone would exceed £500,000.

Pemberton's structural cure on the next deal: file the VAT1614A and obtain HMRC acknowledgement before exchange where a deposit will be applied as part-payment. Where HMRC processing times are uncertain, structure the deposit as held-as-stakeholder rather than released-as-part-payment, preserving the tax point at completion.

Bare-land and part-let scenarios that fall outside TOGC

The general TOGC conditions at Article 5(1) require the transferor to be carrying on a business at the time of the transfer and the transferee to continue that business. For commercial-property sales, the question is whether a letting business exists at the time of the transfer.

Three scenarios that commonly fall outside:

Bare land never put to commercial use. A sale of agricultural land, undeveloped commercial-zoned land, or freehold land with no commercial activity history is not a TOGC because no business is being transferred. The sale is a standard land supply: exempt under Schedule 9 Group 1 absent an option, taxable under any seller's option to tax.
Vacant commercial building with no marketing position. A vacant freehold commercial unit that has never been let, or has been vacant for a long period with no current marketing-to-let campaign, fails the same-kind-of-business test because there is no continuing letting business. The transferee is acquiring the property, not a business. HMRC's Notice 700/9 paragraph 2.4.1 is favourable on vacant-but-actively-marketed positions where the transferee continues the marketing campaign; it is unfavourable on vacant-and-not-marketed positions.
Part-let buildings with substantial vacant elements. A multi-let commercial building where the vast majority is let and a small portion is vacant generally qualifies for TOGC on the let element (with apportionment between the let and vacant parts of the consideration). Where the vacant proportion is substantial (say more than 50% by value), the same-kind-of-business test on the building as a whole may not be met; the parties may need to structure as a sale of two separate businesses (the let element as TOGC, the vacant element as standard supply with apportioned VAT).

The opted-to-tax position is not enough on its own. Even where the seller has opted to tax and the purchaser opts to match, the absence of a continuing business defeats the TOGC at the general-conditions level before the property-specific overlay is reached.

TOGC and VAT on property letting businesses: conditions and pitfalls (overview) (existing companion overview)
Option to tax framework pillar: the 20-year lock, opter binding, prior permission, real estate election (C1 cluster pillar)
Option to tax revocation routes (C2 exit-route depth)
VAT option to tax: operational mechanics, election and revocation (Wave 5 mechanics companion)
Capital Goods Scheme for property businesses: 10-year adjustment mechanics

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Frequently asked questions

Is the primary statutory cite for TOGC VATA 1994 section 49 or SI 1995/1268 Article 5?: SI 1995/1268 Article 5. The operative provision treating a TOGC as 'neither a supply of goods nor a supply of services' is Article 5 of the Value Added Tax (Special Provisions) Order 1995, made under powers in the Value Added Tax Act 1994. Section 49 of VATA 1994 (verbatim heading 'Transfers of going concerns') is the registration-and-continuity provision: it governs the transferee's registration position after a TOGC, treating the transferee as having carried on the business before as well as after the transfer for registration-threshold purposes. The two provisions work together but the operative TOGC rule that takes the sale outside the scope of VAT is in Article 5. Sessions citing only VATA 1994 s.49 as the TOGC operative cite are partially correct (s.49 enables the regulation-making power and the registration-continuity framework) but miss the actual operative provision that produces the no-VAT outcome.
What is 'the relevant date' for option-matching under Article 5?: Article 5(3) defines it as 'the date upon which the grant would have been treated as having been made or, if there is more than one such date, the earliest of them'. In practice the relevant date is the VAT tax point on the property supply, which is the earlier of the date the supply takes place (typically completion) and the date any payment is made (any pre-payment, deposit applied as consideration, or part-payment before completion). The relevant date is NOT necessarily completion; it can be earlier where contractual deposit arrangements bring the tax point forward. Where a buyer pays a non-refundable deposit on exchange that is treated as part-payment of the consideration, the tax point shifts to exchange, and the option-matching must be done by exchange not completion. This is the single most-misunderstood point on the option-matching deadline and is the source of most failed TOGCs on commercial-property deals with deposit structures.
How is the transferee's option-to-tax notified for TOGC purposes?: By the transferee filing form VAT1614A ('Tell HMRC about an option to tax land and buildings') with HMRC, with the effective date of the transferee's option no later than the relevant date. The 30-day notification window that ordinarily applies to a VAT1614A is compatible with TOGC option-matching: the transferee can decide to opt 30 days before the relevant date (the typical pre-completion timeline), file VAT1614A within that 30-day window, and obtain HMRC's acknowledgement before completion. Where the transferee is not already VAT-registered, registration must also be completed (or be required to complete) by the relevant date. Article 5(2A) also requires the transferee to give written notification to the transferor that paragraph (2B) (the paragraph 5/6/12 disapplication exclusions) does not apply to the transferee. The written notification is separate from the VAT1614A and is a transferee-to-transferor communication, not an HMRC filing.
Does paragraph 12 of Schedule 10 disapply TOGC treatment even where option-matching has been done?: Yes, where the conditions of paragraph 12 are met. Article 5(2B) excludes from TOGC treatment supplies where the transferee's onward supplies of the property would be subject to paragraph 12 disapplication (developers of exempt land anti-avoidance). The condition is concerned with the transferee's onward use position, not just the seller's. A transferee opting to tax and notifying HMRC by the relevant date but who is or becomes a developer of exempt land within the paragraph 12 anti-avoidance scope cannot rescue the TOGC treatment by the option-matching alone. The transferee's written notification to the transferor under Article 5(2A) must specifically confirm that paragraph (2B) does not apply: the notification operates as the transferee's declaration that the paragraph 12 conditions are not met. False notification exposes the transferee to direct HMRC enforcement; the transferor retains TOGC treatment provided the notification was received in good faith. The companion C7 disapplication paragraph-walk page covers paragraph 12 in distinction from paragraphs 5 and 6.
What is the same-kind-of-business test for property TOGCs?: The Article 5 condition that 'the assets are to be used by the transferee in carrying on the same kind of business' applied to a commercial-property sale means the transferee must continue the commercial letting business in some form. The paradigm satisfied case is the sale of a fully-let commercial multi-let office building from one commercial landlord to another: the leases continue uninterrupted, the rental income continues to flow, the tenant covenants are unaffected by the change of landlord, and the transferee steps into the transferor's letting position. The case is harder where the property is vacant at completion: the transferee may argue the business is being acquired with a marketed-to-let position, but the same-kind-of-business test is not met where the property is bought for owner-occupation, residential conversion, or held with no letting intent. Mixed-use properties require analysis on the commercial element: the commercial part can be a TOGC even where the residential part is not, with apportionment on the consideration.
What is the SDLT impact of a successful TOGC?: SDLT is calculated under FA 2003 s.51 on the chargeable consideration, which excludes VAT not actually chargeable. A successful TOGC means no VAT is charged on the property transfer, so the SDLT base is the net-of-VAT consideration. For an opted commercial property selling for £5m plus a hypothetical £1m of VAT, the SDLT base after a successful TOGC is £5m (not £6m); the SDLT bill at the 5% top non-residential rate above the £250,000 threshold is approximately £237,500 (versus approximately £287,500 on a £6m VAT-inclusive base). The £50,000 SDLT saving is the primary economic benefit alongside the £1m cashflow benefit on the VAT. For a £20m commercial portfolio with a 20% VAT addition, the SDLT saving alone is approximately £200,000 plus the £4m cashflow benefit on the VAT.
Pemberton Holdings worked example: what is the failure cost of late option notification?: Pemberton Holdings Limited (anonymised commercial buyer) agrees to acquire a £5m opted multi-let office building from Sutherland Properties LLP (anonymised vendor). The deal is structured as a TOGC. Pemberton's VAT advisers file the VAT1614A for the option-matching on Day T-21 before the relevant date; HMRC acknowledges Day T-7. Exchange happens Day T-10 with a £500,000 deposit treated as part-payment of consideration (this brings the tax point forward to exchange, not completion). The relevant date is therefore Day T-10 (exchange), not Day T-0 (completion). HMRC's acknowledgement was Day T-7, which is 3 days after the relevant date. Option-matching has FAILED by 3 days. TOGC is unavailable. Result: Sutherland charges £1m of output VAT on the £5m sale price; SDLT base for Pemberton is £6m not £5m, costing approximately £50,000 of additional SDLT; cashflow VAT of £1m is paid by Pemberton at completion and recovered through Pemberton's quarterly VAT return (typically 6-12 weeks later). FA 2007 Schedule 24 penalty exposure is reasonable-care-based: where both parties relied on advisers and the issue was deposit-structure-overlooks-tax-point timing, penalty is typically nil or low. The cashflow loss and SDLT cost are nevertheless live. Pemberton's structural cure (next deal): file VAT1614A and obtain acknowledgement before exchange, not before completion.
Does TOGC apply to a sale of bare land or a vacant building?: Generally no for bare land never put to commercial use; mixed picture for vacant commercial buildings. The same-kind-of-business test under Article 5 requires the transferee to continue the transferor's business. A landlord selling a vacant freehold commercial unit that has been actively marketed to let but is currently between tenants can argue TOGC where the marketing campaign is genuine and the transferee continues that campaign post-completion; HMRC's Notice 700/9 paragraph 2.4.1 supports this on the right facts. A landlord selling a vacant freehold commercial unit that has never been let, with no marketing position and no rental income history, is materially harder to TOGC: there is no continuing business for the transferee to continue. Bare land with no commercial activity falls outside TOGC entirely; the sale is a standard land supply (exempt under Schedule 9 Group 1 absent any option, or taxable under any seller's option to tax). Part-let buildings raise apportionment questions: the let portion may qualify as a TOGC while the vacant unlet portion does not, requiring separate accounting on the consideration.
What records should both parties keep to defend a property TOGC at later HMRC enquiry?: Five categories of contemporaneous records. First, statutory framework: the executed sale contract evidencing transfer of the business as a going concern with TOGC indemnity drafting; any pre-completion correspondence between the parties referring to TOGC. Second, condition evidence: the tenancy schedule at completion showing the let position; rent receipts to evidence the rental business pre and post-completion; any marketing correspondence on vacant elements. Third, transferee VAT position: the transferee's VAT registration certificate; the transferee's VAT1614A and HMRC acknowledgement with date-stamps. Fourth, written notification: the transferee's written notification to the transferor confirming paragraph (2B) does not apply (the paragraphs 5/6/12 declaration). Fifth, completion-to-post-completion continuity: lease assignments or notices to tenants of the change of landlord; the transferee's first VAT return covering the post-completion period with output VAT on the rents. Records must be retained for at least 6 years from the end of the relevant VAT period; in practice retain for the full Capital Goods Scheme adjustment period (10 years from the relevant capital expenditure) to defend any subsequent CGS adjustment.
Can the parties choose to ignore TOGC and charge VAT anyway?: No. TOGC is mandatory where the conditions are met. Where the Article 5 conditions are satisfied, the transaction is automatically outside the scope of VAT and the transferor must not charge output VAT. A transferor who incorrectly charges VAT on a transaction that satisfies the TOGC conditions has output VAT in their VAT return that should not have been declared; the transferee paying that VAT has no input-tax recovery (there was no taxable supply to recover input tax on). HMRC will reclaim the wrongly-declared output VAT from the transferor; the transferee's wrongly-paid VAT is a contractual claim against the transferor, not an input-VAT recovery from HMRC. The mandatory-outside-scope position is one of several reasons commercial-property TOGC clauses typically include a comprehensive indemnity covering both directions: vendor indemnifies purchaser against the TOGC failing (output VAT chargeable retrospectively), purchaser indemnifies vendor against the TOGC succeeding when vendor had assumed VAT chargeable.
How does TOGC interact with the Capital Goods Scheme on a commercial property?: The transferee steps into the transferor's CGS position. SI 1995/2518 regulation 116 provides that where a TOGC occurs in respect of an asset within the Capital Goods Scheme (capital expenditure on land or buildings of £250,000 or more, VAT-exclusive), the transferee assumes the transferor's CGS adjustment position from the disposal interval onward. The transferor makes a final adjustment for the interval of disposal; the transferee picks up the remaining intervals at the use-proportion applicable to the transferee's onward use. This continuity is one of the structural benefits of TOGC: the transferor avoids a single large CGS adjustment on disposal; the transferee inherits a reduced-recovery-history asset but with future adjustments running against the transferee's actual use. Where the transferee's use shifts toward exempt supplies after completion (e.g. let to a substantially-exempt occupier), the CGS clawback runs against the transferee's adjustments, not the transferor's prior recovery. The transferee's VAT1614A and the TOGC matching are conditions; the CGS continuity is the operational consequence.
Where do I find the option-to-tax framework, the revocation routes, and the paragraph 12 disapplication walk?: Three companion pages. The option-to-tax framework pillar covers the architectural decision, the 20-year lock, the opter-vs-property binding distinction, the real estate election, and the prior permission regime at paragraphs 28 to 30. The revocation routes page walks the four exit routes in depth: cooling-off under paragraph 23, six-year-no-relevant-interest under paragraph 24, twenty-year under paragraph 25, and the disapplication-not-revocation contrast on paragraphs 5 and 6. The dedicated disapplication paragraph-walk covers paragraphs 5 (automatic dwellings), 6 (recipient-certified residential), and 12 (developers-of-exempt-land anti-avoidance) in distinction-by-paragraph form. The introductory TOGC overview page covers the five general conditions in summary; this page is the option-matching depth that the overview does not reach. All four pages are part of the same Wave 8 Bucket C VAT cluster.

TOGC on Commercial Property: The Option-Matching Trap, the Relevant-Date Deadline, and the Pre-Completion Sequence That Determines Whether a £5m Sale Carries £1m of Output VAT

The statutory source and the common drift catch

Option-matching: the property-specific condition at Article 5(2A)

The relevant date: Article 5(3) and the tax-point trap

The pre-completion sequence in calendar form

The paragraph 12 anti-avoidance exclusion

Want this checked against your specific situation?

Failure-consequence worked example: Pemberton Holdings 3-day-late acknowledgement

Bare-land and part-let scenarios that fall outside TOGC

Authorities

Considering incorporating your portfolio?

Frequently asked questions

Understanding the Taxation of FHLs in a Company

Companies House Confirmation Statement Changes from 4 March 2024 Onwards

Condition C: Trading Stock and the Section 162 Incorporation Relief Denial for Developers

The statutory source and the common drift catch

Option-matching: the property-specific condition at Article 5(2A)

The relevant date: Article 5(3) and the tax-point trap

The pre-completion sequence in calendar form

The paragraph 12 anti-avoidance exclusion

Want this checked against your specific situation?

Failure-consequence worked example: Pemberton Holdings 3-day-late acknowledgement

Bare-land and part-let scenarios that fall outside TOGC

Related reading

Authorities

Considering incorporating your portfolio?

Frequently asked questions

Related articles

Understanding the Taxation of FHLs in a Company

Companies House Confirmation Statement Changes from 4 March 2024 Onwards

Condition C: Trading Stock and the Section 162 Incorporation Relief Denial for Developers