Sale of TV studios not a VAT TOGC

In Haymarket Media Group Limited v HMRC [2022] TC08495, the First Tier Tribunal (FTT) found that the sale of TV studios to a property developer could not qualify as a Transfer of a Going Concern (TOGC) for VAT purposes. The vendor and buyer were not carrying on the same kind of business.

• Haymarket Media Group Limited was the representative member of a VAT group of which Haymarket Group Properties Limited (Haymarket) was a member.
• Haymarket owned land and property at Teddington Studios, which it had Opted to tax.
• The site was occupied by the Haymarket Group as its business premises, along with tenants to whom leases had been granted or assigned by Haymarket.
• In 2013, Haymarket applied for planning permission to develop the site, with a view to selling it with the benefit of planning consent.
• The site was taken to market in November 2014 and planning permission was granted in December 2014. This permission included the construction of 213 flats and six houses.
• Contracts for a sale of the site at £85m were exchanged with Pinenorth Properties Limited (Pinenorth) in December 2014.
  • This sale was completed in November 2015 and Pinenorth subsequently completed the development.
• Haymarket did not charge VAT on the sale, treating it as neither a supply of goods nor a supply of services under the Transfer of a Going Concern (TOGC) rules.
• In January 2019, HMRC raised a VAT assessment of £17m having ruled that the sale was the supply of an asset and not a supply of a business as a TOGC for VAT purposes.
• Haymarket Appealed to the First Tier Tribunal (FTT).

One of the conditions to be met for a valid TOGC is that the buyer must intend to use the transferred assets to carry on the same kind of business as the seller. 

The FTT dismissed Haymarket’s appeal, finding that:

• There was not a TOGC of a property development business as Haymarket was not carrying on such a business prior to the transfer.
  • Haymarket held the site as an investment, generating passive rental income. It had not intended to develop the site prior to sale and the capital costs of undertaking the development were in excess of what the group could afford.
  • The intention to sell the site to a developer with the benefit of planning consent was clearly stated by Haymarket from the outset.
  • The site was marketed as a development opportunity, not a development business.
  • The Heads of Terms were consistent with the transfer being that of a freehold interest with planning consent, rather than a business.
  • While Haymarket had spent £870,000 over 18 months obtaining planning permission, this was to enhance the value of the site as an investment and to enable development to take place. It was not active development in itself.
  • A Section 106 Agreement was entered into by Haymarket on the basis that its conditions would be fulfilled by the purchaser of the site.
• There was not a TOGC of a property lettings business.
  • The site was required to be transferred to Pinenorth with vacant possession. This was the agreed position throughout, from initial marketing until completion.
  • Although minor leases were in place at completion, these were tenants connected to and originating from the purchaser. They were not, in substance, true tenants of a property lettings business carried on by Haymarket.

Comment

While the VAT chargeable as a result of non-TOGC treatment was acknowledged as being Reclaimable as input VAT by Pinenorth, the FTT's decision meant that £680,000 of additional Stamp Duty Land Tax was due on the VAT element of the purchase consideration, which could not be reclaimed.

Useful guides on this topic

Transfer of a going concern (TOGC)
What is a TOGC? What conditions must be met? What are the consequences of a TOGC? What case law is there? 

Opting to tax land and property
What is an option to tax? What do I need to do to opt to tax? What happens if I buy an opted property?

Groups (VAT)
What are the conditions for forming a VAT group? What rules apply once a VAT group is in place?

Transfer of a Going Concern (TOGC): Properties
This is a freeview 'At a glance' guide to TOGCs and properties. 

Buy-to-lets & VAT
Buy-to-lets and VAT: when can VAT be recovered in respect of buy-to-lets? What are the conditions? Are there limits?

External link

Haymarket Media Group Limited v HMRC [2022] TC08495