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Paying back VAT on deregistration

Does my client need to pay back VAT claimed 8 years ago if they deregister and close Company down?

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I have had an enquiry from a prospective client who wants some help with winding down their Company. The only real issue they have is that they're VAT registered and have been for a number of years. They claimed back a large sum of VAT about 8 years ago but didn't ever pay the invoice it related to. The Company who provided the goods have never chased them for payment and they are assuming that it must have been written off. What they want to know is if they deregister from VAT, would they be liable to declare that VAT on the final VAT Return and pay it back?

Replies (8)

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By Ben McLintock
30th Jun 2020 11:34

They should have paid it back 7.5 years ago.

How much are you talking about? Could it be within the scope of the Capital Goods Scheme?

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Replying to Ben McLintock:
By phild1702
30th Jun 2020 11:53

Thank you for the reply.

I've mentioned to them that it should have been re-paid years ago but they said as they were never chased for payment, it got forgotten about. Not very ethical I know!! The total VAT amount is approximately £10,000.

It wouldn't fall under the Capital Goods Scheme as the invoices were for the supply of services rather than any tangible asset.

It's a bizarre question I know but they don't want to deregister and then be hit with a large bill due to HMRC.

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Replying to phild1702:
By Paul Crowley
30th Jun 2020 12:19

A bit challenging to forget about a liability of £60,000.
Do you really believe that they forgot about it?

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Replying to Paul Crowley:
By phild1702
30th Jun 2020 12:25

Fair point. I believe they probably didn't make too much of an effort to settle the bill and as time progressed, became less inclined to pay it given they were never chased for it.

Not being chased for such large amounts of money seems odd in itself really.

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Replying to phild1702:
By Wilson Philips
30th Jun 2020 12:30

De-registration should not itself trigger any clawback in respect of the VAT. And indeed HMRC may be out of time do do anything about it if they were to discover it - one for the VAT experts. But how do they intend to go about getting rid of the company? If via an informal strike-off they have to declare that they intend to pay all creditors -unless the suppplier has formally waived the debt they are still a creditor. My advice would be to contact the supplier and offer payment of the outstanding liability. if they turn down the offer - in writing - or if the supplier no longer exists then the practical route is to de-register and strike off (subject to input from the VAT experts here).

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By Matrix
30th Jun 2020 13:11

I would suggest they need to make the accounting adjustment and pay back the VAT and the corporation tax.

Why are they only engaging an accountant now? I expect there are loads of other issues.

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By frankfx
30th Jun 2020 13:14

Presumably they are still showing the supplier liability in the accounts?
That's how you tripped over the issue.
What did their former accountants have to say?

£10,000 VAT problem would have merited a formal email or letter.
What did accountants say at business years, plural years, ends about the VAT 'bad debt', at the very least?
Assuming accountants never assisted on VAT returns.
Could there be deliberate concealment here?
''a wait until the cows come home '' attitude , which is at odds with VAT 6 month rule.

How many former accountants ?

I think AWEBers would like to know if serial former accountants let this lapse, time limits or otherwise.

Caution required on this one.

BTW a good question.

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Replying to frankfx:
By Paul Crowley
02nd Jul 2020 21:24

Still do not fully understand deliberate and concealed.
HMRC read these words differently to THE REST OF THE ENGLISH SPEAKING POPULACE

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