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VAT Deregistration refusal

HMRC refused to deregister for VAT

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New Limited Company café opened shop 1st November and we were instructed to register them for VAT.

Application was voluntary with expected turnover of £100k.

After receiving November sales of £4k and December looking like will be the same we have advised they should deregister as we expect them to be well below the threshold in the next 12 months and thereafter.

Application submitted but has been refused.

Link in refusal to submit further info duly done showing current turnover, but again refused.

Deregistration helpline advises that they can’t deregister until they have received FOUR quarterly returns and there is no right of appeal.

Anyone else had this situation or can point me to the legislation allowing them to do this?

I am aware you can’t ‘undo’ a registration or backdate a deregistration and client is happy to pay VAT up to point of deregistration, but not for a whole year if stays below the threshold, seems bonkers to me!

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13th Dec 2018 09:49

May be a cunning ploy to boost the numbers involved in MTD come April

Thanks (2)
to bernard michael
13th Dec 2018 10:17

It won't, though, will it ?

Their turnover will, apparently, be below £85000.

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13th Dec 2018 09:52

shut the company and start another, massive saving?

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to carnmores
13th Dec 2018 10:17

Top idea so far.

Thanks (1)
13th Dec 2018 09:56

You may have been "instructed" to register them for VAT but why didn't you explain why it was a carp idea ?

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to lionofludesch
13th Dec 2018 10:03

exactly always wait until you have to , maybe there was vat on capital expenditure to reclaim?

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to carnmores
13th Dec 2018 10:15

Maybe. But was it worth paying £14000+ in output tax ?

We've no information but it seems unlikely.

And of course, that VAT on capital expenditure would still be there to reclaim after ten months, had the £100k estimate been accurate.

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to lionofludesch
13th Dec 2018 10:25

would that we knew what percentage of sales was outside the scope of VAT

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By RedFive
to carnmores
13th Dec 2018 10:32

Less than 5%. Sit in cafe, little to no cold takeaway.

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to carnmores
13th Dec 2018 10:41

Outside the scope ?

0%.

Thanks (1)
By RedFive
to lionofludesch
13th Dec 2018 11:20

Lion, is Tim Vane on his Christmas hols and asked you to fill in or has he hacked your account?

;-)

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to RedFive
13th Dec 2018 11:33

Arf, arf.

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to RedFive
13th Dec 2018 11:36

boom boom , the lion sleeps tonight .... or maybe not....

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By RedFive
13th Dec 2018 10:30

Thanks for answers so far though I’m yet to receive anything constructive other thank from carnmores (it’s not a bad idea).

For the avoidance of doubt we strongly advised against it on day 1 and have many reasons but they insisted.

What would my esteemed brothers and sisters have done then?

Anyway I appreciate your coaching as while I’ve been in the financial world for 30 years now (and running my own Prcatice for 10) I appreciate one may not know everything.

However it would be wonderful if someone could just point me to the legislation or just confirm that HMRC are talking bobbins.

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to RedFive
13th Dec 2018 12:07

This is probably were I would start - https://www.gov.uk/hmrc-internal-manuals/vat-deregistration

VAT Notice 700/11 may also be useful.

There is no rule about having to be registered for 4 quarters - not that I am aware of anyway.

As for starting a new company, you will need to consider the transfer of a going concern rules.

Thanks (3)
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to Adam12345
13th Dec 2018 12:56

if the newco is not required to register why is the 'tsf as a going concern' an issue? HMRC will never pursue that. i agree refer them to the manuals tho i doubt they will listen they are intransigent

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to carnmores
13th Dec 2018 13:02

Remembering to charge VAT on the disposal ?

Thanks (1)
By RedFive
to Adam12345
13th Dec 2018 15:07

Thanks that’s helpful though I had been through that I’m glad you agree with me that there is nothing in there about needing 4 quarters to deregister.

I’m going to complete a paper Vat 7 and attach a note with more evidence that they have been and will be under the threshold for the foreseeable future.

I think the HMRC guy was a newbie. It can’t be right to have to remain registered for a year if you can prove you will be below the limit.

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13th Dec 2018 11:08

Error

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13th Dec 2018 11:50

maybe this is a lesson for your client, the advice on offer is given for a reason, if they chose to ignore it and followed their own path they have to accept the consequences.

it not always possible to get clients out of the brown sticky stuff!!

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13th Dec 2018 15:27

@ RedFive (OP).

I have drafted a longish response to your INITIAL question. However, I had noted the words in that question :-

“Application submitted but has been refused”.

I interpreted the word “Application” to mean the VAT7 form. Your 25.07 post states that you NOW intend to submit for VAT7.

This begs the question of WHAT was the “Application” which was submitted previously.

If you could kindly please clarify, I shall amend my draft response, and post accordingly.

Basil.

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By RedFive
to fawltybasil2575
13th Dec 2018 15:54

Apologies Basil, as you were definitely the man I was hoping would be kind enough to respond.

My initial VAT7 application was submitted via Agent Gateway under the clients VAT page, ‘deregister for vat’.
The response was received via ‘agent communications’ in the gateway and I then telephoned the VAT helpline (only helpful in providing me with a telephone number for the deregistration unit) and then spoke to the dereg guy on that number who gave me the unhelpful response in my initial post.

My latest post was that I had decided a paper VAT7 with an attachment might be a better way to reapply to deregister.

Any advice will be gratefully received.

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13th Dec 2018 17:32

@ RedFive.

Thanks for your response. It would be very useful if you could clarify by advising the exact wording of the HMRC “refusal” responses to your online application for deregistration.

If one or both is/are formal “decisions” (ie decisions that HMRC reject the application) then they will indicate the client’s rights of appeal/right to request an internal review (indicating also the time scales to which the client should adhere in that regard). In that event, it will be necessary to comply with those time scales, and in such case a reapplication (via Form7) would be inappropriate.

If however the HMRC “refusal” is of a less formal nature, then Form7 will indeed be the best way forward.

Ideally, a suitably redacted screenshot of the “refusal” message from HMRC would assist.

I shall be pleased to assist further if you would kindly reply.

Basil.

Thanks (1)
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to fawltybasil2575
13th Dec 2018 17:45

well done Basil , its fascinating that such an innocuous looking question can throw up so many fascinating responses

Thanks (1)
By RedFive
13th Dec 2018 17:52

Thanks Basil.

View message

Date Created:
12 Dec 2018
Business name:
Acknowledgement reference:
XXXX YYYY ZZZZ AAAA
Your request to cancel the above client's VAT registration has been refused because HM Revenue & Customs (HMRC) are not satisfied that your client is eligible to deregister for VAT based on the information held.
Your client will, therefore, remain registered for VAT which means that they should continue to meet their obligations for VAT.
Further information about VAT deregistration can be found on the HMRC website.
If you or your client has any further information that you want HMRC to consider, please send it to them now. You can do this online, using the following link: http://www.hmrc.gov.uk/vrs-reply/
If you or your client does not agree with this decision, you can:
• ask for the decision to be reviewed by an HMRC officer not previously involved in the matter, or
• appeal to an independent tribunal
If a review is requested an appeal can still be made to the Tribunal Service after the review has finished.
If you or your client wants a review you should write to HMRC within 30 days from the date of this message, explaining why you do not agree with the decision. HMRC will not take action to collect any disputed tax due while the review of the decision is being carried out
You can find further information about reviews and appeals on the HMRC website.
If an appeal is to be made to the Tribunal Service this should be sent within 30 days of the date of this message.

Info was sent using the http://www.hmrc.gov.uk/vrs-reply/ link shown.

That was rejected:

Thank you for your submission dated 12/12/18. Unfortunately we are unable to progress your application because you have failed to enter the correct reference number given to you when the request for further information was made.

...............I had used the acknowledgement reference, being the only reference number shown so then rang the helpline.

They said they could see that request (I should have used reference 222 followed by vat number, but that's not mentioned on the electronic message) and he rejected the reason saying needed 4 quarters.

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14th Dec 2018 11:37

@ RedFive.

The advice given to the client by the VAT Deregistration Helpline, in claiming that there is no right of appeal, is simply incorrect.

Matters are not assisted by the £100,000 taxable turnover figure entered on the registration form, but that fact does not of itself empower HMRC to reject the Deregistration application.

As an aside, and in intending no offence (especially since you have modestly indicated that VAT is not your specialist area) I would in your case certainly have satisfied myself at the outset that the decision to submit the VAT Registration application was a correct decision, BEFORE submitting it on the client’s behalf (including making a detailed file note of the reasons supplied by the client for instructing you to arrange the registration). Conceivably, of course, and in view of the very low initial taxable turnover, the client may (especially if VAT is payable on rents) have a very small VAT liability on the initial VAT Return, or even be in a Repayment position – in that regard, and as an eminent member above has indicated, the Input Tax on Fixed Assets and/or services could have been reclaimed by means of a LATER registration (in that regard, for completeness, I should mention that your initial question makes no reference to the timing of the acquisition of Fixed Assets and/or services, in preparation for the opening of the café, hence this could be a factor).

If the matter goes to Tribunal, and on the basis of the information supplied by you (and subject to your accepting my advice below) your client should be successful in the appeal.

When you say (in your last post):-

“Info was sent using the http://www.hmrc.gov.uk/vrs-reply/ link shown”,

I assume that this was in response to your having requested an internal review (as opposed to your having submitted a formal appeal).

Since the only later development has apparently been a telephone conversation with the Helpline (due to the problem of the supposed incorrect reference) you are clearly still at the “internal review” stage.

The best way forward is thus for you to promptly provide FURTHER information in support of the application for an internal review (the informal telephone call being of no real importance).

The key to your next approach to HMRC lies in:-

(i) Explaining why the estimated £100,000 turnover figure was shown on the registration form. That application form may, for example, have shown that estimated figure of necessity on the basis that this was an entirely new venture, for which an accurate estimate would have been impossible, in which case you should now say so.

(ii) Preparing a detailed monthly projection of taxable turnover figures for the 12 months from the date of the Deregistration application (with accompanying notes to explain the figures., as explained below).

As regards (ii), whilst the £4,000 taxable turnover for November 2018 appears to imply annual taxable turnover of around £48,000, this figure may well be substantially below an accurate figure, in view of (for example) the “new venture” aspect and also the “seasonal” factor – the “projection” figures to be sent to HMRC should take account of those two factors of course.

The legislation enabling the Deregistration application to be made is Schedule 1 VAT Act 1994 (Paragraph 13) is here:-

http://www.legislation.gov.uk/ukpga/1994/23/contents.

I hope my above comments are found useful. As explained above, if HMRC do not back down I would regard your chance of success, at Tribunal, to be very high.

Basil.

Thanks (4)
By RedFive
16th Dec 2018 11:07

Thank you Basil, very helpful.

Letter sent asking for review with detailed points given as per your missive.

Will report back when I receive a reply.

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By towat
17th Dec 2018 10:45

A new sole trader client came to us having merrily registered herself for PAYE and VAT unecessarily, we deregistered her with no problems.

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17th Dec 2018 11:10

The VAT Registration page on gov.uk says

HMRC will automatically re-register you if they realise you should not have cancelled. You’ll have to account for any VAT you should have paid in the meantime.

There is no mention of a requirement to stay registered for 4 returns. Perhaps your client could commit to paying the VAT IF they are found to have deregistered when they should not have.

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17th Dec 2018 11:47

The legislation is under the VAT Act 1994, Schedule 1 para 4 (1) which refers to the 12-month rule.
I suspect it is to stop a business reclaiming input tax on capital goods and other set-up expenses and then cancelling their VAT number.

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By RedFive
17th Dec 2018 12:00

Thank you Malcolm that is also very helpful.

As with 'towat' since this case I have deregistered a hairdresser client where we had only 2 returns, and went through in 48 hours.

I wish that had happened before I called HMRC as I could then have said, 'yes, but you are talking bobbins'.

In my letter for review I stated that there were no capital repayments and that vat would be due and paid for the initial period of registration.

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to RedFive
17th Dec 2018 12:16

Under VAT Act schedule 1 para 4(2) the Commissioners can deregister if they are satisfied with the reason for the request to cancel the decision.
You should quote the officer this section of the law and ask what information they require to satisfy themselves to allow the business to deregister.
In any event seek a written reply which can be subject to a review/appeal.

Thanks (1)
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17th Dec 2018 15:52

@MalcolmM.

I must respectfully disagree your posts at 11.47 and 12.16 today.

Para 4 is not in point. Para 4(1) refers to a “person who has become LIABLE (my emphasis) to be registered”.

The OP’s client has NOT become so liable, having registered voluntarily.

It is in fact, as I said in my post on 14 December 2018, Para 13 which is in point, specifically Para 13 (1).

Whilst not relevant, for the reason explained above, your interpretation of Para 4(2) is incorrect, since this does not refer to HMRC’s right to deregister (your words were “the Commissioners can deregister”), that sub-paragraph referring in fact to HMRC’s right to PREVENT a deregistration.

In intending no offence, I think you have perhaps not read earlier posts in this thread, as the case is ALREADY at the “review” stage (the closing sentence of your 12.16 post refers).

Basil.

Thanks (3)
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By Steve R
21st Dec 2018 22:06

As a recently retired Inspector of Taxes with recent management of both Indirect and Direct Taxes the request for a review is the best approach. The Review Officer may come out to you for further information, hopefully by making an informal telephone call to you. This will give you an opportunity to provide more detailed information and to discuss your client's business.
HMRC regretably now lack significant experience following their well publicised location strategy. More likely you will find that the Review Officer has the necessary experience and is aware of the questions to put to you.
The only apparent potential 'fly in the ointment' is that this was a TOGC. This being the case the registration is correct and deregistration requires more information.
Await the response from the Review Officer and decide what approach you need to take from there.

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By RedFive
21st Dec 2018 22:29

Thanks for your input Steve but just to clarify this is a brand new venture.

Director has come from employment, formed new limited company and opened coffee shop on a high street where the premises has been empty for over a year.

TOGC is not in point.

Their only mistake was in overestimating estimate turnover on vat application. As it’s an estimate I don’t see how HMRC can bring that into scope.

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to RedFive
22nd Dec 2018 09:54

RedFive wrote:

Their only mistake was in overestimating estimate turnover on vat application.

Their only mistake was applying at the outset instead of waiting until they were required to.

Even if their estimate had been correct, they needn't have applied for the better part of a year.

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By RedFive
22nd Dec 2018 10:19

Well, quite. But I think you have been missing the point
and in the spirit of the season and the fact you are helpful to 'even' non accountants I'll be gentle.

I said early on I didn't want / need a discussion on the rights or wrongs of whether they SHOULD have registered. The question was specifically about whether HMRC were allowed by statute or otherwise to insist on continued registration when a mistake (by client or Acc doesn't matter) had been made.

As an Accountant and long time member of this forum I was looking for advice to help me move forward with a request for review or possible appeal - to which I gratefully received.

If that's not what this forum is for then I don't know what it is. And to get continued carping on about whether the client should have registered or not from you is now moving beyond being mildly irritating.

And is how Steve R though TOGC was in point as the off topic comments muddied the waters.

Would be great if Steve can update his thoughts now that is clarified given his background.

Peace to all and a very Merry Christmas :)

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to RedFive
22nd Dec 2018 10:46

RedFive wrote:

If that's not what this forum is for then I don't know what it is. And to get continued carping on about whether the client should have registered or not from you is now moving beyond being mildly irritating.

Well, so long as you're aware.

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By RedFive
14th Jan 2019 08:53

**update:

Letter received from HMRC allowing deregistration, backdating to original date of request.

Thank you to all who contributed (even you Lion), but especially fawltybasil2575.

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to RedFive
14th Jan 2019 10:44

RedFive wrote:

**update:

Letter received from HMRC allowing deregistration, backdating to original date of request.

Well done, Red.

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14th Jan 2019 10:34

@ RedFive.

Great news - you have done very well (and thank you for your kind comments).

Basil.

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14th Jan 2019 10:51

credit where credits due , a great answer Basil exactly how this site should operate. Nick

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to carnmores
14th Jan 2019 11:01

Yes, indeed.

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