VAT Reclaim for a business that opens and closes in same period

VAT Reclaim for a business that opens and...

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Hi Guys,

I'm an accountant in industry for an company outside the scope of VAT so don't have much knowledge of VAT matters. I have a friend who started a small business buying and selling memorabilia - higher value items, he spent around 10k in total on stock that he now can't shift as it's an extremely niche market and he's just lost interest really - a guy he knows I willing to take them off his hands but basically for a nominal fee as the items are large and there will be a large cost to transporting them to the area where they can be sold. To mitigate the loss the client wants to reclaim the VAT (Vat registration wasn't planned originally as it was only a part time business and not expected to reach any threshold limits). Obviously he will reclaim the VAT and charge the VAT on the sale but will the fact that there is so much of a loss between what was paid and what it is being sold for raise any questions from HMRC? Also the fact that its only been a few months since the items were bought until the business closed, therefore there will just be one VAT return before deregistration raise any questions?

Thanks in advance!

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By Tim Vane
23rd Nov 2015 23:55

Badges of trade? It does not sound to me like he was ever trading and he certainly is not trading now. I doubt that HMRC will accept a VAT registration on the basis of the information given, and for the same reason no losses will be available for sideways relief. It sounds like your friend just bought some stuff on a whim, then sold it for less than he bought it.

My advice: stick it piece by piece on ebay for auction and tell him to take whatever he gets...

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RLI
By lionofludesch
24th Nov 2015 11:06

I'm not so sure ....

I don't agree at all, I'm afraid.  Although I'd need more information to come to a definite decision.

It is said that he started a business "... buying and selling .... " memorabilia.

If that's so, the lack of success doesn't preclude it from being a business.  Having a carp business idea is pretty common.

Did he ever actually sell anything at a profit ? How long did he have the goods he sold?  These are the sort of questions you need to be asking to decide whether his statements are genuine or whether he's only decided that once he's realised that he's "lost interest".

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