A. Where, as in your client’s case, the conditions are met for the sale of a business to be treated as a transfer of a going concern (TOGC) the transaction is treated as ‘neither a supply of goods nor a supply of services’. As a result the input tax on the cost of selling the business cannot be attributed to any supply by the seller and the costs have to be treated as a general overhead of the business.
However, there is an exception to this rule and that is where part of a business is transferred as a TOGC, and the expenses can be shown to have a direct and immediate link with the transferred part of the business. In such cases the expenses form part of the overheads of that part of the business.
So for example, where part of a business is sold and that part of the business only made taxable supplies then input tax is deductible on those expenses. However, as in your client’s case, where part of a business is sold and that part of the business made only exempt supplies the tax is not deductible (unless it falls to be de-minimis under the business’s partial exemption calculations).
