VAT - de-registration

client refuses!

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My client was trading as a small Ltd Co for about 18 mths.  He decided to accept FT employment in the summer and since then he hasn't traded in his Ltd Co.  I've told him he should de-register. He doesnt want to, he has a few more things he wants to buy eg PC, Phone etc.  He says he may do some work via the Ltd CO soon, Ive completed 2 VAT quarters with no sales. I've told him HMRC will spot this and he is at risk of a review. The next VAT return is due and he has purchased a few items - maybe £100 of VAT.

Any advice?  Am I being too pedantic?  Would HMRC be ok with this?

Replies (11)

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the sea otter
By memyself-eye
17th Jan 2017 10:15

charge him a lot, LOT more for your services than the input vat he seeks to reclaim.

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By cheekychappy
17th Jan 2017 10:22

"He says he may do some work via the Ltd CO soon"

So your client has been making taxable supplies, and intends to make more taxable supplies soon?

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Replying to cheekychappy:
Stepurhan
By stepurhan
17th Jan 2017 10:27

cheekychappy wrote:

"He says he may do some work via the Ltd CO soon"

So your client has been making taxable supplies, and intends to make more taxable supplies soon?

As cheekychappy is hinting at, the client is stating that they are continuing to trade.

If they are continuing to trade (get it in writing if you haven't already to cover yourself regardless) then they are entitled to stay VAT registered and claim VAT based on that continuing trade. If you don't believe them, then you need to think about whether you should disengage.

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By Ruddles
17th Jan 2017 10:25

Simply spell out the legislation for him. If the co is intending to make future taxable supplies, and can so demonstrate, then it may remain registered. If he is unable to satisfy HMRC of said intention then they may require him to de-register. It is unlikely but if they were able to demonstrate that no such intention ever existed they could raise a penalty for failure to de-register.

Provided that you've fully advised as above, it's his problem, not yours. But, as noted above, ensure that your fees exceed the input VAT recoverable.

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Replying to Ruddles:
Hitch photo
By Kevin Kavanagh
17th Jan 2017 10:52

Excellent final suggestion by Ruddles.

But don't forget to factor in the VAT recoverable on your bill when you do the calculation.

Thanks (1)
avatar
By thomas
17th Jan 2017 10:56

Many thanks for your thoughts. I suppose my
concern is that he now he is in FTE he is just buying things via the Ltd Co to reclaim the VAT and he isn't doing anything towards trading. I appreciate this may change, and if he had stopped trading for say 3/6 months maybe it wouldn't matter. He hasn't had a sale for 9 mths now. I do have on email from my client that he is still working in the Ltd co so I suppose that covers me!

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Replying to thomas:
By Ruddles
17th Jan 2017 11:10

If you wanted to be [***] about it, you could always ask him what he is using the phone, PC etc for. If ostensibly they are being used for purposes unrelated to the company's business then, while the company may remain registered, it may be that the input VAT on such items should be blocked. (And he should be made aware of that point.)

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Replying to Ruddles:
Portia profile image
By Portia Nina Levin
17th Jan 2017 11:27

Surely input VAT recovery does not depend on what the company is currently doing with the assets (in the absence of currently having any business purpose for them), but what the company INTENDED to do with them when it purchased them.

If they are being used for private purposes, of course, there may be some output VAT to account for.

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Replying to Portia Nina Levin:
By Ruddles
17th Jan 2017 11:48

Agreed - I wasn't specifically referring to their current use v intended use. I had in mind the situation where the company was, as a matter of fact, doing nothing other than paying for equipment etc on behalf of the individual (as the OP suspects may be the case). Of course, the assets could be made available to the individual as a part of his remuneration, which should allow full VAT recovery (and no output charge). On the other hand, a more appropriate treatment might be to take the costs to DLA.

But we get back to the point that there is no need for the OP to get his knickers in a twist. Provided that he's given full and proper advice to the client.

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By Charlie Carne
28th Jan 2017 21:31

Ruddles wrote:
But, as noted above, ensure that your fees exceed the input VAT recoverable.

Why? Either your client intends to continue the trade, in which case there is no need to de-register, or he has ceased to trade, in which case the company should be de-registered for VAT. In the former case, you should charge for the VAT returns that you file (although for the periods when they are nil returns, your fees should be rather minimal), but your fees should not be artificially inflated as some sort of punishment to the client for not doing as you say. As others have said, you should also satisfy yourself that the costs on which input VAT is to be claimed are indeed for business purposes.
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Replying to charliecarne:
By Ruddles
29th Jan 2017 10:44

The level of my fees is a matter for myself and my client.

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