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VAT deregistration following TOGC - due within 30 days but late, is there likely to be a penalty?

My client, a sole trader, sold his business as a TOGC in December.  He has held a VAT registration in his own name for many years and has operated two businesses through the same registration.

His plan was to deregister when he had finalised all the expenses for the business before the sale, on the basis that he was ceasing to make taxable supplies.  I was finding the right form for him to complete when I noticed the fact that he should have notified compulsory deregistration within 30 days of the sale.  The guidance states "You should be aware that if you fail to notify us of any changes affecting your registration details within 30 days of them occurring, you may become liable to a financial penalty"

It is now approx 70-80 days after the sale.  When he completes the form it will trigger deregistration at the date of sale.  He has already completed a VAT return to the end of January and expects to have no more expenses apart from my fees which I understand he would be able to reclaim via VAT 427 Claim for input tax relief from VAT on cancellation of registration. 

The questions are

1.  Is the client likely to be fined for late notification?  If so, any idea how much?

2.  What happens to the VAT return to end of January already completed if VAt deregistration is dated in December (all items on VAT return relate in some way to closing down the business and final payments in respect of expenses incurred before the end of trading)

3.  What is the best way to handle this without me looking silly or the client getting into trouble?  (I am not offically VAT agent as he has always done his own returns.)

Thank you for your help

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Very Little to worry about

1.  Is the client likely to be fined for late notification?  If so, any idea how much?

I'd say the chance is somewhere between 0% and 0.0001%, I managed a regional deregistration unit in HMRC for a few years and I can count on the fingers of one foot how many times we used that particular piece of legislation. I've only seen it threatened with persistent offenders, and only seen it used in fraud cases where the delay managed to acquire some kind of advantage to the trader or a related party.

2.  What happens to the VAT return to end of January already completed if VAt deregistration is dated in December (all items on VAT return relate in some way to closing down the business and final payments in respect of expenses incurred before the end of trading)

If the period where trade ceased has already been declared then they'll issue a one day return for the first of February to tidy up any outstanding tax (I'd need more fingers than the Cadbury fudge factory to count the number of times we issued those), and after that you'll use the VAT427 as you've already identified.

3.  What is the best way to handle this without me looking silly or the client getting into trouble?  (I am not offically VAT agent as he has always done his own returns.)

Send in the deregistration form and await the final VAT return. There's no tax loss, no likelihood of a repeat offence, they really wont care that you're afew days late with the deregistration.

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Thank you so much for that, you have really taken a weight off my mind.  It's rare that we have a "oh my God, I should have done that/known that" moment, but this was one of those.

One more question though please as I have an expert on the case.  Looking through his records which have just arrived with me, I note that he has charged VAT in January on his consultancy services to the new owner.  (Business sold in December, provided training/ consultancy until end Jan to new owner).  These services will be after the compulsory deregistration date, but as the client saw it he carried on making taxable supplies so charged VAT on them.  There is no corresponding input tax reclaim for the January period as there were no expenses. 

Again as there is no tax loss and no liklihood of repeat offence, am I right to assume that this will also be ok?  Would it need adjusting on the one day VAT return or best left alone as the VAT charged would be reclaimed by the new owner anyway so zero net effect.

Thanks again for your help

 

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Leave it alone

If he had agreement to provide consultancy after the sale, then he had a right to remain registered. In effect he hasn't ceased with the TOGC he's ceased once he's fullfiled his final trading obligation, and made those final taxable supplies, so I'd say he's probably not even late deregistering yet!

So deregister from the end of January/First February or whenever he issued his final invoice, and that's that.

Just one thing I didn't notice on the first post - he ran two businesses through this registration, I take it both were transfered, or have now ceased?

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Yes, both businesses have now ceased

Thanks again.

Yes both businesses have ceased, one many years ago and now this one has been sold.

So, instead of ticking the "I have sold my business as a TOGC" box he should just tick the "I have ceased to trade" box and give the final invoice date?

 

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Covering letter?

That's probably as reasonable as anything. You could put a covering letter briefly setting out that there was a minimal level of trading following a TOGC, as they like to know who's taken over a business to check their registration status, but technically he ceased trading after this final invoice so that should be fine.

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Thank you

A final thank you (and no further questions!) - your advice has been invaluable. 

This is accountingweb at its best :-)

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