From the Law Society's tax law committee
One change in this year's Budget, with immediate effect, was an additional requirement for property transactions to be transfers of going concerns (TOGCs), and therefore not to attract VAT.
Prior to the Budget, for certain property transfers (property where the vendor had made a valid election to charge VAT on supplies, and certain transfers of freehold land on which new buildings had been erected) a purchaser had to make a valid election to waive exemption before the transfer was capable of not attracting VAT.
Quite apart from the VAT consequences if VAT was chargeable, the stamp duty land tax was likely to be increased.
Vendors now need to be satisfied that a purchaser's option to charge VAT will not be disapplied as a result of another VAT change (intended to limit avoidance) made in the Budget.
While law firms may wish to prepare their own wording, the effect of the notification needs to be along the lines that 'the purchaser hereby notifies the vendor that the provisions of paragraph 5(2B) of the VAT (Special Provisions) Order 1995 as amended do not apply to the purchaser'.
Given that transactions may have commenced prior to the Budget, HM Customs has now issued a business brief (21 April 2004) that for pre-1 June 2004 transactions where a purchaser's option to charge VAT is not disapplied by these changes (and all other conditions for the sale to be treated as a TOGC are satisfied), HM Customs will permit a sale to be treated as a TOGC even if the purchaser has not issued a notification to the vendor, provided both the vendor and purchaser agree that such treatment will apply.
The key point is that after 31 May 2004 notification will be needed from all purchasers, and without it TOGC treatment will not be available.
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