Save content
Have you found this content useful? Use the button above to save it to your profile.

Deregistration and some implications

16th Jan 2014
Save content
Have you found this content useful? Use the button above to save it to your profile.

I am often involved in advising on deregistration. Like registration for VAT, it is best planned, not guessed. And, like registration, it can trigger expensive errors.

The two main reasons to deregister are ceasing to trade, and a reduction in turnover.

Where a person ceases to trade, he has 30 days in which to notify HMRC. This is an online procedure nowadays. The final VAT Return, up to the day of cessation, must also be submitted and paid within 30 days of cessation.

The situation is slightly different where there is a reduction in turnover. The person can deregister because he expects his taxable turnover in the next 12 months to be below the threshold of £77,000. (Do note that this is slightly below the registration threshold.) The person has to ‘satisfy the Commissioners’ that his turnover will be below the threshold, but anecdotal evidence suggests that HMRC make few checks on traders seeking deregistration. (This has helped traders get through the process efficiently, but it has also led to some abuse of the system.) This situation does allow the taxpayer to choose a suitable date to deregister. He should give adequate care to this.

One problem area – where a person ‘ceases to be a taxable person’ he is required to account for output tax on any assets on hand at deregistration, where the VAT due on its value exceeds £1,000. This means that any asset of £5,000 or more triggers a ‘deemed supply.’ Do note that the £1,000 value has remained unchanged through the various changes in the standard rate of VAT!

The most likely trigger of such a charge is the ownership of a building, which can lead to a very large VAT charge.

Do note that even an exempt supply of a building (where it is not opted to tax) can create a problem, as it can lead to a repayment of input tax under Partial Exemption or Capital Goods Scheme rules. The rules on this issue are complex, and advice should be sought as early as possible.

There is some guidance at http://www.hmrc.gov.uk/manuals/vatscmanual/VATSC20000.htm

A taxable supply will also be triggered by ownership of commercial vehicles, equipment, and stock on hand at the date of deregistration.

One area of opportunity – VAT incurred after deregistration relating to supplies made before deregistration can also be claimed. This typically includes Accountants’ and Solicitors’ fees, but can include other services. Form VAT 427 is required, and original invoices must be sent to HMRC. And, multiple claims can be made. (Go here to download the form: http://search2.hmrc.gov.uk/kb5/hmrc/forms/view.page?record=izvOKnV2M2Y&f...)

Another area of opportunity – bad debt relief can also be claimed after deregistration. This happens if the 6 month limit has not been reached at the time of deregistration. PN 700/18, para 5.3 explains the procedure for this.

Tags:

You might also be interested in

Replies (0)

Please login or register to join the discussion.

There are currently no replies, be the first to post a reply.