VAT Registration and Deregistration Query

I'm looking to deregister as my turnover is likely going to be below threshold in the next 12 months

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So I'm looking to deregister from VAT as due to Brexit uncertainty I expect my turnover to be below the threshold for the next 12 months.

My customers are private individuals and can't reclaim VAT, and add to this that most of my competitors in my industry are not VAT registered it benefits me not to be VAT registered.

My question is what happens if over the next 12 months I do go over the threshold and have to reregister for VAT? I know HMRC have the right if they think you shouldn't have deregistered to reregister you and charge you for the VAT you 'should' have paid but presumably this comes down just to their judgement? On paper our outlook now is very bad - the sector we're in we are usually booked up years/months in advance so we can show that at this point compared to previous years we have every reason to be down on turnover. I would think this should convince them that we were right to deregister?

This does make me wonder about how this could possibly play out over a longer term - assuming 12 months after deregistering we do reregister and that's all fine, I wonder what happens then. If a few months later we again think the outlook means we will not be over the threshold for the following 12 months do we just deregister again, and then start the 12 month rolling period again and after that reregister again? This process could effectively mean not charging for VAT when for a long time we would actually have been over the threshold (just by registering and then deregistering again shortly after saying we anticipate being below the threshold for the next 12 months, which starts the 12 month rolling period again, and then registering after 12 months if it turns out we're over the threshold, and shortly after deregistering again... and the cycle continues etc). 

Replies (10)

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By Accountant A
05th Apr 2019 20:32

If you don't wish to pay for professional advice and gain the comfort that you are optimising your tax position, I suggest that you read the HMRC guidance on the subject and see if you can resolve the matter yourself.

Do you manage all your own tax affairs currently? I wonder if you are missing any opportunities or taking unknown and unquantified risks?

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By Accountant A
05th Apr 2019 20:56

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By MattWilliams2321
05th Apr 2019 21:11

A lot of what I'm asking is very general, and a lot of it is hypothetical. I have read through all the HMRC guidance myself and it is not entirely clear and a bit open ended, hence the reason for me asking the question here - as I expect people will have different views on this, and I would be interested in hearing all those views. Whilst this is not particularly sensitive content, I had the option of posting as anonymous, and so I chose that option - since I don't require anyone to get in touch with me directly, and I have no history on this site since this is my first question. As I say it is just a general question, that I don't think has a clear answer, and hence I was keen to open it up to the community to consider.

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Replying to MattWilliams2321:
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By Accountant A
05th Apr 2019 21:53

Quote:

A lot of what I'm asking is very general, and a lot of it is hypothetical.

So? What matters is the specifics that apply to your circumstances which is what a professional accountant will consider.

This is a forum for finance professionals not people who need advice but don't want to pay for it. If deregistration would be to your financial advantage then why would you not pay to get advice to get sufficient certainty? If you struggle with this are you confident that you deal with all your other tax affairs correctly?

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chips_at_mattersey
By Les Howard
06th Apr 2019 09:56

If you are properly deregistered, and then subsequently have to deregister, HMRC will NOT penalise you.
There is legislation and guidance to that effect.

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By SXGuy
07th Apr 2019 17:35

Firstly. It's a rolling 12 month period to consider registering, so if you went over for a month, you may or may not need to register.

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By MattWilliams2321
07th Apr 2019 18:14

To 'Accountant A', I'm not sure you fully understand the question I'm asking. I know that deregistering would be in my financial interest, my brother is a financial advisor and he has already advised me such. The question I'm asking is what is to stop someone resgistering, then deregistering after a couple of months (which effectively starts the 12 month rolling period starting again) and then after 12 months registering again, and then just a couple of months later deregistering (claiming you don't expect to go over the VAT threshold for the next 12 months) which again starts the 12 month rolling period all over again, and so on and so on. This would appear to be allowed but would effectively mean you could operate over the threshold limit indefinitely as you could effectively just keep restarting the 12 month rolling period?

Again, for 'Accountant A' benefit - I have asked this question of a professional financial advisor (my brother) and he doesn't have a definitive answer to this hypothetical situation, hence asking for a broader range of views.

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Replying to MattWilliams2321:
By Duggimon
08th Apr 2019 10:17

Perhaps you should pay for advice then, instead of consulting your brother who is either acting outwith his comfort zone, or not very good.

Advising you on what you should do would require a more in depth knowledge of your business than any of us care to get without being engaged professionally.

Answering your hypothetical question about tax evasion, the answer is that it's tax evasion and that's why you can't do it, hopefully that's sufficient for your purposes. You have a couple of misconceptions around the rolling 12 month period and what constitutes a valid reason for deregistering which is perhaps preventing you from recognising it as such.

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By fawltybasil2575
08th Apr 2019 11:58

@ MattWilliams2321 (OP).

The direct answer to your question (your post at 18.14 on 7 April 2019) is that it is indeed POSSIBLE to carry out the series of actions to which you refer and, IF those actions have all been made IN GOOD FAITH, then you will have legitimately acted tax-efficiently.

HOWEVER, HMRC have the right, at any point, to challenge the legitimacy of any or all of those actions – in your case, SPECIFICALLY at RISK are of course the deregistration applications. HMRC may challenge any or all of those applications on the grounds that you did not have LEGITIMATE grounds for forecasting that the then future taxable turnover would be below the deregistration limit.

In relation to the FIRST deregistration application, that “RISK” is relatively small (but should not be discounted). That “RISK” however of course increases with each subsequent application, since it increasingly calls into question the legitimacy of the forecast figures used by you. You could then find, for example taking the third of three applications, that HMRC would adopt the stance that it was very likely that your forecast taxable turnover figure had been illegitimate right from the very start. You would then be faced with having to disprove that HMRC stance which , if successful, would result in your being faced with substantial VAT arrears, and interest and penalties to boot.

You are thus postulating a high risk strategy: as I said above, such strategy is indeed possible, and could be successful if carried out in good faith. In the mix is the possibility that, whilst your actions ARE indeed in good faith, HMRC take (incorrectly) the contrary view. You would then be in the unenviable position that “you know you are right” but are at risk that a Tribunal finds against you.

Basil.

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Replying to fawltybasil2575:
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By MattWilliams2321
08th Apr 2019 12:33

Many thanks fawltybasil2575, that is very helpful and makes complete sense. In particular what you say about doing this repeatedly calling into question the legitimacy of the forecast figures. I think you've perfectly explained why it's best to be avoided, unless you have extremely compelling reasons supported by evidence for why you expect the turnover to be below the threshold on each occasion. Thanks again.

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