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VAT Deregistration

Has limited being exceeded in the following 12 months

My client is a consultant and was vat registered as his annual turnover was over the threshold. Due to a downturn in business, he expected his turnover in the next 12 months (from 1 Nov 2017) to be around £50K and so deregistered for vat as from 31 October 2017. His sales in the next 12 months to 31 October 2018 amounted to 80K i.e. under the threshold. However i note that when reviewing say 12 months to 31 August 2018 and 30 September 2018, his sales in those 12 months were 87K and 86K respectively. (Over the threshold but these will include some sales both before and after deregistration).

As the sales for the 12 months after deregistration are under £83K, is this the only rule he needs to worry about and therefore does not yet have to re-register for vat? Obviously this then needs to be reviewed on a monthly basis going forward.

 

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05th Dec 2018 17:58

Nope. He needs to re-register from, on the face of it, 1st October 2018.

Or convince HMRC to grant him exemption on the grounds that this was temporary.

He can hardly plead ignorance. He's been registered before.

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05th Dec 2018 17:51

Guilty.

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By pauld
05th Dec 2018 18:16

Not sure now that I agree with the replies. Say he had 20k per month sales up to 31 Oct 2017. This was to drop to 6k per month from 1 Nov 17 so deregistered from 31 Oct 2017 as sales in next 12 month's will be 72k. His yearly sales to 30 nov 17, 31 dec 17, 31 jan 18, 28 feb 18 etc would all be greater than 83k but surely that is irrelevant as it's the turnover for the 12 months after Dereg that is the important figure I.e. 72k?

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to pauld
05th Dec 2018 18:22

pauld wrote:
..... as it's the turnover for the 12 months after Dereg that is the important figure I.e. 72k?

Why do you say that ?

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By pauld
05th Dec 2018 18:36

Vat notice 700/11 section 3.2 1st para

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to pauld
05th Dec 2018 19:15

I think your interpretation of this is way, way off and out of context.

It's about deregistering - not whether you have to re-register.

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By jcace
to lionofludesch
06th Dec 2018 00:04

But Pauld's point is that de-registration took place in anticipation of turnover in the following 12 months being below the dereg threshold, which it was. However, prior to that point, T/O on a rolling 12 months would be above the registration threshold because it would include the higher T/O when registered.
VATDREG15000 states "Schedule 1, paragraph 1(4) provides that, once a person has cancelled their registration, we will usually disregard any turnover from the previous period of registration when we are calculating when they becomes liable to register again.

We will not disregard this turnover where a person has withheld any relevant information or misled the Department at the time of cancellation."

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06th Dec 2018 06:03

@pauld.

With respect to Lion and Andy, your own observations, and those of jcace, are correct, and there is no requirement to register for VAT on the basis of the taxable turnover figures supplied by you.

In essence, where a deregistration has VALIDLY taken place, one effectively starts off with a “clean sheet” with effect from the first day after the deregistration date.

As you are clearly aware, you will next need to consider the taxable turnover for the 12 months to 30 November 2018.

Basil.

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to fawltybasil2575
06th Dec 2018 08:49

Basil

I can see that, in a scenario where, say, a trader owns a dozen hair salons taking £50k a year and sells 11 of them, it would be reasonable to disregard past turnover in respect of the single salon remaining.

But here we have a different scenario. The trader said he was going to take less than £83k and it wasn't true.

However, I do take the point and note that the trader's turnover has fallen again.

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06th Dec 2018 09:25

@ Lion,

I emphasised “VALIDLY”, in my last post. Where the deregistration has been made validly, ie where the trader genuinely believes the future taxable turnover to be below the deregistration limit, then it matters not that such belief transpires to be incorrect.

Explicit in the OP’s account of his client’s case is that the “belief” of his client was genuine/valid. Hence, the “clean sheet” principle espoused in my last post, and more lucidly in jcace’s posts, is the correct interpretation of the HMRC guidance.

Basil.

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By pauld
06th Dec 2018 09:15

Lion - he has taken less than £83K in the 12 months following deregistration.. He did not withhold any relevant information at the time of Dereg and business picked up again towards the end of the 12 month period, hence he will likely to have to re-register within the next 6 months. Why do you say its not true?

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By frankfx
06th Dec 2018 10:07

Not guilty...…….. or is the jury still out.

The fact is , so long as the deregistration was valid,
obeying the 30 day rule / not ''retiring''/ and other HMRC
requirements , then the taxi meter restarts and one does not look back to historic turnover

The OP provided an example where future turnover was expected to be below £83,000...…….. on the new ,projected meter. Deregistration was accepted.

The former turnover , if treated as part of AN ongoing 12 month rolling calculation, would be a burden too far.

Clearly if turnover in the new / fresh period breached the £85,000 threshold then we are back in VAT registration land.

The OP though referred to a rolling 12 months ………………. including pre deregister date.

A ''NEW'' VAT History effectively re started on 1 November 2017 , the rolling and accumulation starts FROM that date .

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By frankfx
06th Dec 2018 12:50

Lion and Andy

Is the verdict still '' guilty'' , or a miscarriage ?

Your responses are welcome as you invariably provide assertive commentary ……….. should we always take this with a pinch of salt?

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to frankfx
06th Dec 2018 13:36

frankfx wrote:

Lion and Andy

Is the verdict still '' guilty'' , or a miscarriage ?


Well, frank, I am indeed very much swayed by the counter arguments. Nevertheless, I note the word "normally" in HMRC's advice and I'd like some confirmation that this is "normal".

I'm sure we're all aware that one cannot backdate a deregistration. Five years down the line, if HMRC decide you should've been in, you're stuck with a five year VAT liability - whatever your turnover.

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06th Dec 2018 16:10

@ Lion,

Jcace, in their post at 00.04 today, kindly directed us to the legislation, which is here:-

https://www.legislation.gov.uk/ukpga/1994/23/schedule/1

Subsection (a) of Para 1(4) prescribes that HMRC “shall” (impliedly in ALL cases except those to which subsection (b) applies) disregard all the taxable turnover figures in the previous registration period.

Subsection (b) of Para 1(4) prescribes effectively that subsection (a) is inapplicable IF the person has withheld information which, if it had been supplied to HMRC, would have resulted in the previous VAT deregistration application being declined.

Since the OP has asserted (at least impliedly) that NO information has been withheld, then 1(4)(b) is inapplicable; and hence 1(4)(a) IS applicable.

If there is but a scintilla of possibility that HMRC might later seek recourse (however disingenuously) to Para 1(4)(b), by contending at some future date that they are NOT “satisfied that before his registration was cancelled he had given them all the information they needed in order to determine whether to cancel the registration”, then one can write now to HMRC to assure them that all the “information” was indeed supplied to them, and request their confirmation that they are so satisfied; and furthermore invite them to request any further information which they consider appropriate to enable them to do so. Whilst there is no absolute guarantee that HMRC would provide a satisfactory positive response to such request, it reduces to the absolute minimum the possibility of inappropriate HMRC action.

Basil.

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to fawltybasil2575
06th Dec 2018 16:33

I agree with everything you say, Basil.

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