VAT Focus
You should be careful when issuing discount vouchers that you fully understand the VAT implications this may have for your business. Potential problems could arise if you are uncertain as to how much is the proper amount to charge for VAT and at what time during your promotional scheme.
In a recent VAT Tribunal case, a night club owner decides that, in return for entry payment at the door, the customer would receive a discount voucher for reduced-price entry on a future date. Thus the voucher was said to bear a monetary value and the VAT for that value was due only on its redemption.
HMRC argued that the owner should have accounted for VAT on the entire payment made, it being made entirely in return for admission on the first night. The owner relied on the law VATA 1994, Schedule 6, paragraph 5 “Where a right to receive goods or services for an amount stated on any token, stamp or voucher is granted for a consideration, the consideration shall be disregarded for the purposes of this Act except to the extent, if any, that it exceeds that amount.”
The owner argued that customers knew they were paying a separate and additional sum for the voucher and that they had the option to pay a lesser amount for admission without the voucher.
The Tribunal remained largely unconvinced, holding that there was only one indivisible contract with one payment – for entry to the club; the voucher was seen as ancillary.
You might see the value of professional guidance illustrated through the model above. When the law can be interpreted in many different ways and the consequences potentially quite significant, it is better to act with experienced guidance.
Transfer of a Going Concern
Transfer of a going concern (TOGC) is a common form of asset transfer which is treated as not giving rise to a supply for UK VAT purposes. On the surface, it appears that TOGC treatment is simple and desirable from both financial and administrative perspectives as no VAT is chargeable and no VAT needs to be accounted for. However, the issues that arise when TOGC treatment is available are often complex and require careful consideration.
Firstly, in order to be eligible for TOGC treatment there must be a transfer of assets of the business in question. Secondly, it is necessary to establish that what is transferred is a business activity for VAT purposes (by way of general guidance the term ‘business’ is defined as including ‘any trade, profession or vocation’). If the assets transferred do not constitute a business activity, there can generally be no transfer of a business as a going concern.
TOGC treatment may apply to either a transfer of a business or a transfer of only part of a business. In both cases, it is necessary that the assets are to be used by the transferee in carrying on a business activity as the transferor. The basic effect of TOGC treatment applying to a transfer is that there is deemed to be no supply for VAT purposes, so that the transfer is outside the scope of VAT and no VAT is chargeable on the transfer.
However, operation of the TOGC rules may require the parties and their advisors to obtain information quickly which is not readily available. This is why it is important to ask the right questions and identify exactly what information you are going to require at an early stage in your discussions to avoid holdups nearer completion. Care will need to be taken in all cases to ensure that the legal documentation takes account of the differing positions of the seller and the purchaser. The aim of this article is to provide only an overview of TOGC treatment.
If you wish to discuss discount vouchers or the practical effects of TOGC treatment in relation to your own business, contact Jon Davis at jdavis@clbcoopers.co.uk for further information