I am selling my business. Will I have to pay GST?
In most cases, when you sell the assets of a GST-registered business, you will have to account for GST.
If you are selling or transferring your business or part of your business (a business being defined as any trade, profession or vocation) to a new owner, known as a 'transfer of a going concern' (TOGC), the sale may not be subject to GST.
What is and what is not a 'transfer of a going concern' (TOGC)?
A TOGC is where the buyer of a business and its assets is put in a position whereby they can continue to run the business, or a similar business, using the assets transferred.
Conditions for a TOGC
The main GST conditions for a TOGC are:
- where the seller is a 'taxable person' (a person who is registered or liable to be registered) the purchaser must already be a 'taxable person' - or become one - as the result of the transfer
- the assets are sold as part of the transfer of a 'business' as a 'going concern'
- the assets are intended by the purchaser to be used in carrying on the same or similar kind of business as the seller
- there is no significant break in trading (a break of several months may be reasonable, depending on the circumstances)
- where only part of the 'business' is sold it must be capable of operating separately
If these main conditions are met, the TOGC rules apply and the sale is not subject to GST. If you are in any doubt, contact the Taxes Office.
What are TOGCs
The following situations may be transfers of a going concern:
- the existing owner dies or retires and the business assets are taken over by another person
- part of an existing business is sold to another person
- the assets of a business are transferred to a new legal entity (eg when a sole proprietor takes on a partner or forms a limited company)
- the sale of an internet business to a new owner outside Jersey (subject to the normal criteria (above) being met)
What are not TOGCs
The following situations are not transfers of a going concern, and therefore will be subject to GST (although there may be no sale):
- changes in the composition of a partnership (because a business is not transferred)
- where there is no transfer of assets (because there is nothing to which the TOGC provisions can apply)
- a transfer of shares in a limited company from one person to another where the assets still belong to the limited company (because there is no change in ownership of the assets (ie no supply) to which the TOGC provisions could apply)
- the assets of your business are bought by another person and either:
- you don't transfer your business to that person
- you stop trading
- transactions between members of a GST group
For a transfer to be a TOGC it must include the transfer of business assets
Business assets can include:
- stock in trade
- fixtures and fittings
For TOGC provisions to apply, the transfer of assets must put the purchaser in possession of a business, rather than simply the assets themselves.
What happens when I transfer my business as a going concern?
When you transfer your business as a going concern, the following things happen:
- if you (the seller) are registered for GST, the buyer must register for GST (if they aren't already registered) from the date of the transfer
- you must transfer your business records to the buyer (unless you make a written request to GST team to retain your records and your request is approved)
- you must not charge GST to the buyer
If you charge GST when you should not have:
- the buyer will not be able to reclaim this amount as input tax, because the sale was not chargeable to GST
- you will have to cancel any tax invoices you've issued and provide the new owner with a refund of the GST charged
If you aren't registered (or registerable) for GST
It is possible for a TOGC to take place where the seller is not registered or registerable for GST.
- Mrs X has a business with an annual turnover of less than £300,000 and is not registered for GST
- she sells the assets of the business to a buyer (including stock, fixtures and fittings, and premises) for a total of £1 million
- the sale of the business appears to take her over the GST registration threshold of £300,000
- however, the sale of assets is disregarded from turnover under Schedule 1, paragraph 1(4), GST law 2007
- disregarding the sale of assets, Mrs X's turnover is still under £300,000, so she doesn't have to register for GST
- she sells the business as a going concern, so the sale of the business is not charged GST
- therefore, neither Mrs X nor the buyer will be required to register for GST
What is 'the same or similar kind of business'?
Under the TOGC rules, one of the conditions is that the assets must be intended by the purchaser to be used in carrying on the same or similar kind of business as the seller.
For example, if an Italian restaurant is sold and re-opens as a Chinese restaurant, that is a similar kind of business because the new business can use the same equipment, premises and furniture as the old one.
However, if it re-opens as a newsagent, that is not a similar kind of business.
What is a 'significant break in trading'?
Under the TOGC rules, one of the conditions is that there is no significant break in trading.
Any break in trading should be what is reasonable to carry out re-equipping, re-decoration or re-stocking of the business:
- in the restaurant case (above) a few weeks is normal
- in the case of a seasonal business a break of around six months (sale at the end of one season; re-open at the start of the next) is acceptable
- if the business relates to one annual event, a break reflecting this is reasonable
Can I transfer my 'Customs-approved trader' status?
No. The new owner will have to apply to Customs.
I have bought a business as a TOGC. Can I keep the same GST number?
Not normally, but we will consider transferring the GST number where the owner is in practice the same (eg a sole trader transferring their business to a limited company they control).
Does the transferee become liable for tax debts of the transferor?
No. Each taxable person is responsible for their own tax debts only.
What if I am keeping some of my assets and cancelling my GST registration?
You must calculate the value of the assets you're keeping and declare output tax on these on your final GST return (unless the GST is less than £250).
I am selling the property I own to the current tenant. Is this a TOGC?
Probably not, because the tenant will not be put in possession of a property-letting business by the sale.
However, if there are two tenants and you sell the property to one of them, and that tenant will continue to lease the property to the second tenant, then that is a TOGC.
Cancelling your GST when you sell or take over a business
You must let us know in writing within 30 days if any of the following happen.
If you sell your business
If you sell your business and are not going to continue trading in another capacity, you will need to cancel your GST registration.
If the new owner continues the business without a significant break in trading, this is likely to be a TOGC.
If the new owner registers for GST immediately after the transfer, the sale of your business will not be chargeable to GST.
The new owner should apply for GST registration before finalising the transfer.
If you change legal entity
If you change the legal entity of your business (eg from a sole proprietor to a partnership or limited company), you do not have to cancel your GST registration.
GST group registration
If one member of a GST group stops being registered, then, as long as two or more group members remain, the GST registration of the group can continue.
If you want to disband the group, you must cancel your registration. If a member of the disbanded group continues to trade, that member must check if they need to register.
If the member who leaves the group is the representative member, the group must nominate a new representative member.
If only one group member remains, the registration becomes a normal GST registration.
What if I am already GST registered and intend to create or join a GST group?
If you create or join a GST group, you must liaise with the Tax Office to ensure that all the group members are registered under a single GST number.