VAT compliance check after cancelling registration

HMRC have requested a compliance check 5 months after registration cancelled - is this common?

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One of my clients cancelled their VAT registration from Oct 31st 2022. The request was made on Dec 7th 2022 and accepted. HMRC have just written to the client to inform them of the intention to carry out a compliance check and has requested information for four VAT returns (July 2019, October 2020, April 2021 and October 2022).

Are there any difference time limits which apply where a registration has been cancelled? I can't see any so presumably we just buckle down and answer the queries raised by HMRC??

The reason for the cancellation of the registration was that the company has ceased trading. 

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By Wanderer
04th May 2023 12:32

johnny fartpants wrote:

The reason for the cancellation of the registration was that the company has ceased trading. 

If it has ceased trading are there any funds to pay your fees or any VAT that might come out of the check?
Any chance of it getting struck off?
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Replying to Wanderer:
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By johnny fartpants
04th May 2023 12:54

Yes there are funds to pay the fees as the company is solvent and has paid off all of its creditors to date.

The reason that the company remains dormant rather than applying for a formal strike off is that it was badly affected by the Covid pandemic (leading to the decision to call it a day) but had business interruption insurance which should have paid up to £250K compensation for "SARS type pandemic". The company's losses were well in excess of this but their insurer has refused to pay any compensation. They are waiting for their day in court before closing the business.

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Johny Fartpants Picture
By johnny fartpants
04th May 2023 12:42

The longer back story is that the company was badly affected by the Covid pandemic and ultimately decided to call it a day. One director just didn't want to rebuild from scratch again.

The remaining director has set up a new company which thankfully is doing well again now that the pandemic has become less of an issue.

The company is solvent and all creditors (including everything owed to HMRC) has been paid so yes it has funds to pay for any "missing" VAT.

The reason for not applying for a strike off is that the company had an insurance policy for business continuity which should have paid up to £250K in the event of a "SARS type virus" affecting their trade. Their loss was well in excess of this but the insurer has refused to pay out. The company is hanging on for this to be settled before applying for a strike off.

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By Roland195
04th May 2023 14:54

Is there anything unusual about those particular 4 returns?

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Replying to Roland195:
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By johnny fartpants
04th May 2023 17:13

Possibly. The first shows lots of profit and VAT paid (pre Covid), the second shows massive downturn in activity (due to Covid restrictions), the third is similar (massive downturn in activity now resulting in a small VAT refund) and the final one shows a final flurry of activity and bigger VAT bill as the company's assets were sold on. I can see why they have been picked out and it is just unlucky on my client I guess.

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By bendybod
09th May 2023 10:33

It is common for anything with HMRC to take four months, minimum. In an ideal world, they would notify the client soon after deregistering of their intention to carry out a compliance check. We, however, live in far from an ideal world, which means we have to deal with things like this for clients.

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