Independent VAT Consultant
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VAT: Don’t deregister in haste

Does the coronavirus pandemic mean that it’s now a good time for some small businesses to deregister from VAT? That may not be wise or possible, explains Neil Warren.

25th Mar 2020
Independent VAT Consultant
Columnist
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VAT Return
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Many small business owners will be considering if the trading impact of the coronavirus means now is the right time to deregister from VAT. The basic rule is a business can deregister if it expects taxable sales in the next 12 months to be less than £83,000. The deregistration date can only be from a current or future date.

Temporary cessation of trading

If a business is VAT-registered and is still trading, any request will be for voluntary deregistration. The approach is to either complete a paper version of form VAT7 and submit to HMRC or complete and submit online. But there is a potential problem with the legislation as explained in VAT Notice 700/11, para 3.2:

“HMRC will not allow you to cancel your registration if the reduction in your turnover is the result of your intention to stop trading or suspend making taxable supplies for 30 days or more in the next 12 months.”

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Replies (7)

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By mjshort
26th Mar 2020 06:51

Surely our clients can deregister as they have stopped making taxable supplies.

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By djbrown
26th Mar 2020 10:46

Re HMRC guidance: "HMRC will not allow you to cancel your registration if the reduction in your turnover is the result of your intention to stop trading or suspend making taxable supplies for 30 days or more in the next 12 months.”

Surely in example 1, it's not the client's intention to cease trading? He is being prevented from trading...

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By rmillaree
03rd Apr 2020 10:09

I have a client in this situation , at present i expect turnover next 12 months will be below 83k. However if i wait 2 months and the company expects to re-open their shop within say 30 days due to being given the all clear i could imagine at that later time the expectation would not be so clear cut. However i am not convinced the article is wrong.

"Surely in example 1, it's not the client's intention to cease trading? He is being prevented from trading..."
I think the problem is that the legislation specificlaly says

"he will cease making taxable supplies , or will suspend making them for a period of 30 days or more"

taking this at face value if its a forced suspension - it doesnt alter the fact it still is a suspension - despite the facts its not a cessation - they will likely be making no taxable supplies for the next 30 days - if they expect to remain closed. It's alla bit too much as i guess when they open they will be at a lower level than recently and would be below the threshold anyway - i have always been loathe to use assumptions that may look stupid later though - it could possibly end up that they have high initial sales when they re-open as their customers have been missing out on their quality fair. I guess in current times i really shouldnt worry about my reaosnable assumptions being slightly off [***].

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Replying to rmillaree:
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By rmillaree
03rd Apr 2020 10:10

ooops that 4 letter **** word was used in a very reasoanble context - i wasn't trying to say anything naughty :)

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By Nick Graves
26th Mar 2020 10:50

Seems a bit previous to throw in the towel so quick.

Many businesses will have ongoing costs, so are 'trading' despite having no taxable supplies.

Might as well claim the VAT refunds due pro tem.

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JCACE
By jcace
26th Mar 2020 11:42

Really helpful article, thank you Neil.

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By rockallj
26th Mar 2020 16:11

Neil, if a client has constructed a "home office" solely for business use and claimed back all the VAT, is there an issue on deregistration? So a cost of, say £100,000 including VAT, £16,667 input VAT reclaimed. 2 years later, MV, not easy to determine, say £60,000.

So final output VAT on deregistration £12,000?

The structure isn't bricks and mortar, but certainly more than a glorified shed. Think one of those of wooden construction, properly insulated with loo & mini-kitchen.

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