The Upper Tribunal (UT) has reversed the decision of the First Tier Tax Tribunal in the case of Intelligent Managed Services Limited (2015) UKUT 0341. The case involves the transfer of a business into a VAT group such that the supplies made by the ongoing business are disregarded following the transfer (i.e. the only customer was in the same VAT group after the transfer). The question was whether the transfer qualifies as a VAT free Transfer of a Going Concern (TOGC).
The UT considered the impact of Skandia America Corporation Case C-7/13 which decided that a VAT group is a separate taxable person from each of its members insofar as VAT is concerned. This meant the transfer was not to an individual company in the VAT group but to the VAT group as a whole. The VAT Act 1994 stipulates that a business carried on by a member of a VAT group is deemed to be carried on by the representative member, but this does not change the nature of that business. It did not matter that the business was carried on within the VAT group itself – the supplies may be disregarded for that reason but not the business or the transactions – for the purposes of the TOGC conditions.
This judgment may lead to a tightening of the anti-avoidance provision in s44 of the VAT Act 1994, and there may be retrospective claims to be made where HMRC has denied TOGC treatment in these circumstances.