De-registering for VAT

[Simpo Two]

For various reasons I'm thinking of de-registering for VAT.

The first temptation is to rush out and buy loads of new kit for the business while there's still time to claim the VAT back, but I understand that I'd still have to pay the VAT as it's too close to the time.

Is that correct, and will I get a VAT visit anyway?

[Eric Mc]

When you de-register for VAT, you are supposed to account for Output VAT on items which are still in your possession at the time of de-registration and for which you reclaimed Input VAT previously. The main areas that you would need to look at are fixed assets and unsold stock for resale.

At the point of de-registration, the VAT man looks on items such as these as a form of "Self Supply" (i.e. a sale to yourself) and therefore the VAT reclaimed earlier must be repaid. However, if the retyail value of these items is less than the original cost, the VAT repaid will be based on the retail value rather than the original cost.

When you notify the VAT man that you intend to derigister, they will send you a special "Final VAT Return" which is brown (as opposed to the more normal green). The final VAT transactions need to be accounted for on this return.

[Simpo Two]

Thanks Eric. I was thinking of camera equipment in particular, which I suppose would be a fixed asset or capital equipment (my usual chap is on holiday at present!)

Do they need a certain notice period? My next quarter ends on 31 July.

[Eric Mc]

The normal procedure is that you notify them of the date from which you want to deregister. They will then send you one of these special final returns for completion. You have quite a while after the de-registration date before you have to submit this final return i.e. the one month period that applies to normal returns does not apply to this final return.

[smartie]

Isn't there a limit though where amounts below (ie total assets held) can be ignored? Something like £5K?

[Eric Mc]

I didn't think there was but I am prepared to be proved incorrect on this.

[smartie]

Just looked it up...

If the VAT payable on assets still held is less than £1000 (ie goods worth less than £6714) then no VAT is payable.

[Simpo Two]

smartie said:

If the VAT payable on assets still held is less than £1000 (ie goods worth less than £6714) then no VAT is payable.

Interesting. Does this mean I can rush out before 31 July and spend up to £6714 on cameras, reclaim the VAT and get to keep it? Or does that total include all assets, eg stuff I bought last year? There must be a time period surely?

[smartie]

Total assets still held at de-reg, based on current market value. Search for VAT7 on www.hmrc.gov.uk

[Simpo Two]

OK, sounds like a depreciating-over-three-years thing. One for my numbers guy when he gets back. Thanks.

[Simpo Two]

Yes, my numbers man has confirmed it, so I can buy the gear, then deregister and keep the reclaim

Very many thanks Smartie, smart by name and smart by nature

[smartie]

[Simpo Two]

Just to conlcude, here it is in chapter & verse:


Mxx

Ex 700/11

6.7 How do I work out the VAT due?

You should normally value the land/goods at the price you would expect to pay for them in their present condition or
if you cannot establish this, the price you would expect to pay for similar land/goods or
if you cannot work out the value of identical or similar goods, you should use the price the goods would cost to produce at the time your registration is cancelled.

Remember:

if the total VAT on the assets to be included is £1,000 or less, then no VAT is due
this means that if the assets you have to include are all standard rated (17.5%), you do not have to account for VAT if their total gross (VAT-inclusive) value is £6,714 or less
if the total gross value is more than £6,714, you must account for VAT on all the goods you have on hand, using your final return form (Form VAT193 or its Welsh equivalent Form VAT197)
you may incur a financial penalty if you under declare the VAT due on your final VAT return. You can find out more about the financial penalties for under declarations in Notice 700/42 Misdeclaration penalty.