VAT de-registration for retailers

VAT de-registration for retailers who drop below the de-registration level.

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Could anyone offer advice on a situation that many of our retail clients will be experiencing, and I’m sure many small  businesses throughout the country.

Due to Covid-19, where many retail businesses, who were VAT registered, and have had to close, will have a period, probably a number of months, where their turnover will drop to nil.

Taking those nil sales months into account, may well see these businesses drop below the VAT de-registration threshold. Particularly, if they were only marginally above the £85k registration level to start with.

Are there any VAT regulation, that would prohibit them from de-registering?

The VAT guidance prohibits de-registration , if there is an intention to stop trading for 30 days or more in the next 12 months. But this is in the future.

There seems to be no mention of the situation  where trading a stopped in the past ( voluntary or mandatory) , and then trading has re-started, and the business has found themselves, below the de-registration threshold.

Any opinions, or guidance on this would be appreciated.

 

Replies (6)

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Ivor Windybottom
By Ivor Windybottom
10th Jun 2020 22:28

Before advocating this planning consider your responsibilities under the PCRT (Professional Conduct in Relation to Taxation) rules.

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Psycho
By Wilson Philips
10th Jun 2020 22:56

It’s not about past turnover - the test is to convince HMRC that future (12 months) turnover will be below the de-registration threshold. So, COVID closure might result in turnover falling to below the threshold over the previous 12 months. But if and when the business can open its doors again, what is projected turnover for the next 12?

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By fawltybasil2575
10th Jun 2020 23:50

@ LancsAccountant (OP).

Your question of course relates to several retail clients, but makes particular reference to clients with taxable turnovers just above the registration limit.

Applications for deregistration should be accepted without question, by HMRC, if a valid reason is put forward for the expected FUTURE taxable turnover being below the deregistration limit.

Hence, in many businesses, the FUTURE continuing closures of retail outlets (and/or the reduction in takings due to social distancing regulations) will severely impact upon taxable turnover figures. Such being the case, I would recommend your immediately (for those retail clients who have been adversely
affected by COVID-19) discussing their estimated future takings, with a view to submitting deregistration applications where appropriate.

Priority of course should logically be given to those VAT- registered businesses with the lowest turnover figures.

Frankly, and especially in relation to those retail businesses which have had to close in recent weeks, you should ALREADY have discussed deregistration with them.

You refer to the “30 days or more” rule: this is simply not relevant to your clients generally. That rule is of an anti-avoidance nature to thwart deregistration applications purely on the grounds that a business will cease trading altogether in the next 12 months, or close its doors for a month so as to artificially reduce its takings.

I would respectfully suggest very PROMPT attention to a review of your retail clients, as explained above.

There is nothing remotely untoward about applying for deregistration (where the expected future annual takings are expected to be below £83,000) in the circumstances you describe: indeed, quite the reverse.

Basil.

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Replying to fawltybasil2575:
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By LancsAccountant
11th Jun 2020 11:09

Thank you for those comments.
I have already dicussed this matter with the relevent clients. But just wanted to be on sure ground before going further.
One point , you comment (2nd para) the de-registration should be accepted without question.

But HMRC guidance states that retail businesses:-
"HMRC may allow you to cancel your registration, providing,
you can satisfy HMRC that you’ll stop charging VAT, or
if you’re a retailer, you can satisfy HMRC that you’re going to reduce your prices by the VAT element".

So that isn't 'without question', and indicates other proof is required.
Thank you once again.

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chips_at_mattersey
By Les Howard
11th Jun 2020 08:41
Thanks (1)
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By fawltybasil2575
11th Jun 2020 11:27

@ LancsAccountant.

I thank you for your post at 11.09.

May I ask you to kindly refer to my post on an earlier thread, here:-

https://www.accountingweb.co.uk/any-answers/vat-deregistration-27.

I trust that my comments in that thread (re the misleading information supplied by HMRC) are reasonably clear. I reaffirm that, in practice, you should not experience difficulty.

Basil.

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