VAT deregistration: Basics and pitfalls

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VAT expert Les Howard outlines a number of basics and pitfalls around deregistering for VAT.

There are two basic circumstances in which you can deregister for VAT.

  • The value of your expected taxable supplies in the next 12 months is below the deregistration threshold. This is currently £83,000 and lags behind the registration threshold. In this situation, you can effectively choose the time that deregister takes effect; or
  • You cease to make taxable supplies. This may be because you have ceased to trade, or that your supplies become entirely exempt from VAT. You are required to notify HMRC within 30 days.

There is no provision which allows you to deregister simply because your taxable turnover in the last 12 months has been below the threshold.

When you need or choose to deregister, you should complete form VAT 7.

The most common problem that arises in relation to deregistration is the ‘deemed supply’ of assets on hand at the date of deregistration. You should check this at an early stage.

The legislation is in VAT Act 1994, Sch 4, para 8. The deemed supply does not occur if the VAT that would be due is less than £1,000. (This is one threshold that has remained unchanged for many years!)

One exception is that there is no deemed supply where input tax is not allowed on the purchase of goods (para 8(2)). {Is credit for input tax not allowed where VAT has not been charged by the seller?]

One potential risk is if the person holds a commercial property, which has been opted to tax. HMRC frequently match deregistration applications against their option to tax records. Their CONNECT system allows them to match Land Registry and other data against the VAT record.

HMRC internal guidance is quite helpful on this point. It states that, even where a taxpayer has opted to tax, there is no deemed supply if he has not claimed input tax. This would appear to contradict the wording of the legislation; and it is not consistent with the wording of Notice 700/11, chapter 7. And, I have come across a number of instances where HMRC have simply ignored this guidance!

This is the internal guidance, which may assist where the taxpayer has opted to tax.

About Les Howard

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Hi, I am a VAT Consultant, working mainly with charities. I am based in Cambridgeshire

I have over 20 years experience in VAT, and am currently also a part-time member of the Tax Tribunals.

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