Over the weekend Cineworld announced that it will temporarily close its doors in reaction to the postponement of the release of the latest film in the ‘James Bond’ franchise. This news provides a good opportunity to draw attention to HMRC’s recent confirmation that temporary breaks in trading activity do not amount to a permanent cessation of the trade for tax purposes.
HMRC has confirmed that if a business closed its doors to customers, or otherwise ceased trading during the coronavirus lockdown period, but intended to continue trading after restrictions were lifted, then the trade should not be treated as having ceased.
This means that if all other Transfer of a Going Concern conditions are met, then the temporary closure of a business due to the COVID-19 crisis will not affect the Transfer of a Going Concern status should the business be sold. If the Transfer of a Going Concern conditions are met, the transfer of the business will be outside the scope of VAT.
Those conditions are as follows:
- the assets, such as stock-in-trade, machinery, goodwill, premises, and fixtures and fittings, must be sold as part of the transfer of a going concern
- the buyer must intend to use the assets in carrying on the same kind of business as the seller – this does not need to be identical to that of the seller, but the buyer must be in possession of a business rather than simply a set of assets
- where the seller is a taxable person, the buyer must be a taxable person already or become one as the result of the transfer
- in respect of land or buildings which would be standard-rated if it were supplied, the buyer must notify HMRC that they have opted to tax the land by the relevant date, and must notify the seller that their option has not been disapplied by the same date
- where only part of the business is sold it must be capable of operating separately
- there must not be a series of immediately consecutive transfers of the business
For further advice on the above, please contact us.