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VAT pickle

VAT reg/dreg

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A client should have registered for VAT a few years back....HMRC enquiry (not VAT related) but has now come to light. Rolling turnover exceeded threshold for 12 consecutive months and then dropped back below and ever since. Enquiry Inspector said better to register now so as to mitigate the penalties that will arise. He is then going to talk to the VAT people pending completion of his enquiry and agreement of figures etc. such that the VAT returns can then be done at that point and he will take the VAT hit. I have no problem with this. My query is with respect to VAT deregistration....can I deregister him at the point his turnover then drops below the threshold? Or not? i.e. can I only deregister him now/more recently? If registered now (but back-dated) in these circumstances it only seems fair to be registered up to the point his turnover falls below the threshold and him to not to have to take a VAT hit since then. Am I right, or not?  


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26th Apr 2019 13:13

Nope. You can only apply for deregistration at a date in the future.

It's the main disadvantage of burying your head in the sand and hoping nobody notices you drifted over the threshold. You can't deregister until you register.

I'm not sure if I've understood the bit about the Inspector taking the VAT hit but, if that's true, it's very nice of him to pay the trader's VAT for him.

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26th Apr 2019 13:21

Thanks....and no I didn't mean that.....

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to Chipette
26th Apr 2019 14:22

Jolly interesting.

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to Chipette
26th Apr 2019 14:29

Indeed interesting....thanks

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26th Apr 2019 14:41

It is worth asking for this concession if it isn't offered. One of my clients was able to use it in similar circumstances.

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26th Apr 2019 20:59

@ andrew12ll (OP).

I consider it ESSENTIAL that you first explore the possibility that NO REGISTRATION will be required at all. Your first two sentences, in reverse order, are as follows:-

(i) “Rolling turnover exceeded threshold for 12 consecutive months and then DROPPED BACK BELOW (my emphasis) and ever since”.

(ii) “A client should have registered for VAT a few years back . . . . . . . . . . . . . “

Of course, it is the rolling “TAXABLE turnover” figures which one must consider.

The matter is best considered by way of example. If the taxable turnover exceeded the then registration limit, for the first time, in the 12 months to 31 August 2015, then ostensibly the VAT registration would have been required to be effected from 1 October 2015. HOWEVER, one must then take the client’s mind back to 1 October 2015.

Now we know, with HINDSIGHT, that (if the wording in your question can be taken literally) the taxable turnover actually “dropped back below” the registration limit IMMEDIATELY, ie from 1 September 2015 – it is simplest to use the very slightly later date of 1 October 2015 in explaining the position.

To be only slightly pedantic, it is the deregistration (not the registration) limit which is important (albeit the difference between the two limits was minimal, at £2,000). If the client, at 1 October 2015, EXPECTED the taxable turnover figure in the 12 months to 30 September 2016 to be below the deregistration limit (I emphasise again that what the taxable turnover figure for that year ultimately turned out to be is IRRELEVANT) then one can advise HMRC that Registration should not apply at all (on the basis that if the client HAD applied, at 1 October 2015, to be excepted from registration, then HMRC SHOULD have accepted such application).

Now of course, if the client can indeed validly state that, at 1 October 2015, his forecast taxable turnover would have been below the deregistration limit, he can expect HMRC to ask him to provide EVIDENCE that such forecast is genuine. Without knowing the nature of the client’s business, or its plans at 1 October 2015, I cannot assess the probability of such forecast being accepted by HMRC. It is best to (without “leading” the client, or indicating why you are asking the question) ask him to take his mind back to 1 October 2015, and to appraise you of his expectations (in terms of forecast future taxable turnover) at that point.

One factor which is potentially important is whether the client’s customers, from 1 October 2015 in my above example, would have recovered any VAT charged to them. It MAY be that, for example, the client would have genuinely expected his taxable turnover from 1 October 2015 to 30 September 2016 to be below the deregistration limit simply BECAUSE he would have ENSURED that it was below that limit so as to enable him to validly apply for exception (a concept which some HMRC officers may have difficulty with).

It is essential also that your client (or you on his behalf) take a proactive line, by contacting HMRC (VAT office) directly, and NOT wait for the HMRC “Enquiry Inspector” to contact his VAT office colleagues.

HMRC will always ask for monthly taxable turnover figures for a long period (starting well before, on my above example, 1 September 2014; and ending well after 30 September 2016) so you/your client should provide those figures to them at the outset [and you should, in doing so, ensure that (i) those figures are correct and that (ii) you have correctly identified the first “taxable turnover over the registration limit” date – any error(s) in that information could open the door for HMRC to reject the application].

If the recommendations which I have given above do NOT enable you/your client to VALIDLY apply for exception then I agree the comments above in relation to the request for the “Liable no longer liable” concession to apply.


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