ShirleyM
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VAT Deregistration

VAT Deregistration

Has anyone any experience of a client registering, and deregistering, within days.

A new client started work as a freelance courier and registered for VAT after a couple of months. The work wasn't profitable, so he continued looking for employment. He expected this to take a few months, but he managed to find a job days after registering for VAT.

He bought a van (prior to registration) and we intended reclaiming the VAT, but he has now deregistered as self-employment has ceased. The VAT reclaim on the van is below the threshhold for VAT to be repaid on deregistration. His first VAT Return is also his final return. Are HMRC likely to refuse the VAT reclaim on the van?

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31st Jul 2012 11:00

Short registration for VAT

Interesting one! I think that HMRC cannot refuse the VAT reclaim. But they may try!

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By twj4789
31st Jul 2012 11:09

Short Registration

Hi Shirley,

When you de-register HMRC will ask for the value of all assets on which VAT has been reclaimed. VAT will then be levied on this, effectively they will not refuse the reclaim but it will be recharged to him on deregistration.

If the client has sold the van then the sales proceeds should include VAT which would need to be paid to HMRC.

Hope this helps.

Slightly different circumstances but something I came accross last year - HMRC actually have a "short registrations unit" we have a client who crossed the threshold considerably for six months then ceased. HMRC issued a reigstraiton certificate and deregistration letter together along with the returns to be completed to cover the period.

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31st Jul 2012 11:46

Below the threshhold

Thanks for the comments.

@twj4789 - do you think HMRC will ask for the VAT to be repaid on all assets, even if below the repayment threshhold? I haven't had to do that previously, but the periods of registration were much longer in those cases.

The VAT involved is just £550, which is a great deal of money to my client. This is below the threshhold for VAT to be repaid on deregistration, and he is currently selling the van but has already ceased trading and has already deregistered for VAT.

Claiming the VAT paid for the van, and not repaying it, appears to be within the rules. I just wondered if anyone knew of any extra ruling regarding short periods, or the likelihood of it being challenged by HMRC.

 

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By twj4789
31st Jul 2012 11:51

In that case

it seems like your client should be in the clear. If they have already accepted the deregistration and everything was below the limit there isn't anything I am aware of that would cause later problems!

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31st Jul 2012 11:56

Can't see a problem...

the threshold is £1,000 i think, below this and the revenue ignore it.

 

The only challenge i can see is that the revenue suggest that no trade actually existed and that there was never a business (and so vat registration was not applicable)...other than that can''t see how hmrc can refuse

 

 

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31st Jul 2012 12:01

Thanks everyone

There is no justification to say that trade did not exist, so it's good news for my client :)

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By DMGbus
31st Jul 2012 13:41

And a further VAT claim to be made...

If you as advisor are VAT registered then your client can reclaim VAT that you charge on your fee for dealing with VAT and accounts relating this short-lived business.

Form VAT427 is used for this purpose.

 

 

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31st Jul 2012 15:30

Taxable supplies

Did your client actually make any taxable supplies after purchasing the van?

If he didn't then HMRC might try to disallow the input tax claim on the grounds that it wasn't incurred in connection with making of taxable supplies.

That dependso n whether they bother to look anyway, and even then it might not be successful

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31st Jul 2012 15:52

Yes

He was only VAT registered for one week, but he made taxable supplies.

The timing may look suspect, but he didn't hope to find employment so quickly, and he registered for the VAT flat rate scheme, which would have given him a little extra income to boost his very low (virtually non-existent) margins.

I know it looks bad, which is why I posted this question. The Courier company were using him as a mug. I've seen the self-billing invoices produced by the courier company and they were 'aving a larf .... but that was the only work he could find, at the time.

He has a family to support, so the more money I can save him, the better.

EDIT: the situation is no worse than people who have loss making businesses, but reclaim VAT in the knowledge that they will be profitable one day ... but that day never comes.

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