VAT: The TOGC Rules and Supplies of Goodwill

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09 December 2008

Under the transfer of a business as a going concern (TOGC) rules, once certain requirements are met the transfer of a business is treated as a 'non-supply' for VAT. The VAT Tribunal in Royal Bank of Scotland plc v Commissioners For Her Majesty's Revenue & Customs (decision published 20 November 2008) had to consider an interesting variation on the application of these rules. 

A simplified version of the facts is as follows: 

A, an insurance company, transferred its insurance business consisting mainly of goodwill to B, and at the same time entered a Marketing Agreement with B. A lump sum of £350m was paid by B to A for the goodwill, and VAT was charged on the basis that not all the requirements of the TOGC rules were met.

Under the Marketing Agreement B had the exclusive right to the details of A's general insurance customers for a period of 15 years. It also provided that B would market A's branded insurance policies and it set out the way B would conduct itself in relation to the renewals of general insurance policies. 

Provision was made for commission payments to be made to B depending on the levels of insurance business written by A over the course of the Marketing Agreement. The Marketing Agreement was novated, and new agreements on the same terms were entered first between A and C, and then A and D. 

The appeal concerned the VAT treatment of the commission payments. 

Though the initial transfer from A to B did not meet the requirements for TOGC treatment, a transfer from A to D would have. D, the appellant in the case, argued that each time a commission payment was made from A to D this was in return for separate supplies of the goodwill of the business under the time of supply rules, and that TOGC treatment remained available where the business was transferred in this way for a fixed period of time and a degree of operational involvement was maintained. On this basis there would have been no VAT on the commission payments from D to A.

In the alternative, D argued that the commission payments were in respect of VAT exempt supplies of insurance intermediary services by an insurance broker or agent.

The VAT Tribunal rejected both of the appellant's arguments. It found that A was not an insurance broker or agent and that the services supplied under the marketing agreement were not insurance intermediary services. The exemption being argued for was to be strictly construed, and the terms 'insurance agent' and 'insurance broker' had technical meanings in European law that A did not fall within. 

In relation to the TOGC argument, this was rejected on the basis that, on the facts, it was a mis-characterisation to contend that the consideration for the transfer of the business was the lump sum payment plus the unascertained amounts of commission over the 15 year period. The Marketing Agreement had described the commission as being in return for ongoing marketing and other services provided by A, rather than payments for ongoing supplies of the goodwill of the business.


The case raises, without resolving, the question whether the TOGC rules apply where: 

  1. (i) there has been a series of transfers of a business from A to B to C to D, effected through novations
  2. (ii) the first two failed to qualify as TOGCs but the last would have had it been a transfer from A to D
  3. (iii) the consideration is paid periodically over time. 

This is more likely to become an issue where the transfer of the business involves mainly goodwill. Goodwill is treated as a supply of services for the purposes of VAT. The time of supply rules prescribe that the basic tax point is when the services are performed, which is not apparent when the supply is one of goodwill for a period of time. If treated as a continuous supply of services, each time a payment is made or an invoice issued this is to be treated as a separate supply under the rules. So arguably the TOGC rules could take payments from D to A in the circumstances outlined above outside the scope of VAT. While this suggestion must be treated with caution, as the Tribunal did doubt (without explanation) whether transactions effected as above should be viewed as involving a transfer of a business from A to D, nothing in the legislation appears to rule this out.

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