Vat refund - dormant company

Vat refund - dormant company

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I have a client with a company that received a vat refund on their first vat return as their supply is zero rated. They have now decided to make the company dormant to pursue another venture. Would HMRC expect the refund back on de-registering the company from vat? Thanks in advance. 

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VAT
By Jason Croke
28th May 2024 09:41

Depends.

If the VAT reclaim was incurred in the pursuit of a genuine business interest, then chances are HMRC will not want the refund back.

Remember that when deregistering, no output tax is due where the total VAT on stocks and assets is less than £1k. If your client setup a NewCo, bought a fancy laptop or van, reclaimed the VAT, sold a pair of old trainers on Vinted for £5 and then wants to go dormant, then we come back to whether there was a genuine business here or just an attempt to reclaim VAT on a fancy laptop/van (as an example, not suggesting your client did this).

Business do get setup and then fail, sometimes failing instantly, sometimes taking much longer but it all comes down to intention. Brief details in HMRC internal manual here https://www.gov.uk/hmrc-internal-manuals/vat-input-tax/vit22000

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RLI
By lionofludesch
28th May 2024 13:14

As Jason says in so much more depth, maybe.

There's nowhere near enough information to say.

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By Londonacc
28th May 2024 17:41

Thanks both. Much appreciated.

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Replying to Londonacc:
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By FactChecker
28th May 2024 18:40

At the risk of stating the obvious (and very much in addition to Jason's points), if they "have now decided to make the company dormant to pursue another venture" *after* making a first VAT return that was entirely reclaimed inputs ...
... then I hope the client understands any purchased items (that generated part of the figures in that first VAT return) are the property of the dormant company - and so not available to anyone to use, or to be sold, whilst the company remains dormant.

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Replying to FactChecker:
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By Paul Crowley
28th May 2024 19:31

And any tax losses are.....lost if the trade has ceased.

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