VAT de-registration - business unit is opted in for VAT
Discussion
I currently have a Ltd Co, VAT-registered for about 8 years. This Summer I'm streamlining some of way I work to create a sort-of-semi-retired lifestyle, and as part of that the business turnover will fall below the VAT threshold. So I plan to de-register for VAT.
One outstanding issue: the business owns an industrial unit that was £100,000+VAT when bought, as the developer had opted for VAT. My business paid the £120,000 (and it got a VAT refund in that quarter).
At some point in the future, my business will sell the unit, and most likely the buyer will be a VAT-registered business. Would I have to re-register for VAT to charge VAT on the sale price, and then send on the VAT to HMRC?
My accountant's a lovely guy but has no direct experience of this sort of thing. Does anyone here know the correct process? Or can you recommend a VAT specialist who could give an expert opinion (paid for, naturally).
One outstanding issue: the business owns an industrial unit that was £100,000+VAT when bought, as the developer had opted for VAT. My business paid the £120,000 (and it got a VAT refund in that quarter).
At some point in the future, my business will sell the unit, and most likely the buyer will be a VAT-registered business. Would I have to re-register for VAT to charge VAT on the sale price, and then send on the VAT to HMRC?
My accountant's a lovely guy but has no direct experience of this sort of thing. Does anyone here know the correct process? Or can you recommend a VAT specialist who could give an expert opinion (paid for, naturally).
I presume you intend to own the premises post de-registration?
If you do, then normally, if a business reclaims VAT when it buys something and then de-registers for VAT whilst still owning the item it bought and claimed the VAT back on, it must declare the VAT to HMRC at the point of de-registration.
If you do, then normally, if a business reclaims VAT when it buys something and then de-registers for VAT whilst still owning the item it bought and claimed the VAT back on, it must declare the VAT to HMRC at the point of de-registration.
Hi Eric. Yes, the idea is to keep the business premises ownership in the Ltd company, which would carry on trading as before (just with a lower turnover and without VAT registration).
My Google-fu is weak, but from using a few keywords, the summary/outline pages from VAT consultants seem to agree that:
1 - the Ltd company would have to account for goods and assets (including land but excluding goodwill) that is on hand at the date of deregistration;
2 - VAT is payable
3 - which would mean a VAT payment due of ~£25,000
4 - which would be bad, but I would not be paying VAT on trading in the coming years, which (together with some admin/accounting savings) would eventually wipe that out.
5 - when the business eventually sells the premises ... then not sure!
There's some other situation where a sale of business and its premises as an ongoing concern has a different status, with no VAT payable, but I don't think it's relevant.
My Google-fu is weak, but from using a few keywords, the summary/outline pages from VAT consultants seem to agree that:
1 - the Ltd company would have to account for goods and assets (including land but excluding goodwill) that is on hand at the date of deregistration;
2 - VAT is payable
3 - which would mean a VAT payment due of ~£25,000
4 - which would be bad, but I would not be paying VAT on trading in the coming years, which (together with some admin/accounting savings) would eventually wipe that out.
5 - when the business eventually sells the premises ... then not sure!
There's some other situation where a sale of business and its premises as an ongoing concern has a different status, with no VAT payable, but I don't think it's relevant.
It would only be relevant if there was a new "VAT Registered" entity taking over the trade of the de-registering entity.
Once you come out of VAT, any VAT you might have reclaimed in the past that relates to trading stock and fixed assets still in use at the date of VAT de-registration, needs to be accounted for in the final VAT return and repaid to HMRC.
Once you come out of VAT, any VAT you might have reclaimed in the past that relates to trading stock and fixed assets still in use at the date of VAT de-registration, needs to be accounted for in the final VAT return and repaid to HMRC.
Escapegoat said:
One outstanding issue: the business owns an industrial unit that was £100,000+VAT when bought, as the developer had opted for VAT. My business paid the £120,000 (and it got a VAT refund in that quarter).
At some point in the future, my business will sell the unit, and most likely the buyer will be a VAT-registered business. Would I have to re-register for VAT to charge VAT on the sale price, and then send on the VAT to HMRC?
The issues which have not been answered are what did you use the unit for, how old is the unit, and did you opt to tax - it doesn't matter what the seller did but what you did.At some point in the future, my business will sell the unit, and most likely the buyer will be a VAT-registered business. Would I have to re-register for VAT to charge VAT on the sale price, and then send on the VAT to HMRC?
If you were using the unit for your own purpose and not renting it out (so no need to opt to tax - although a lot of people don't understand that, and that includes HMRC sometimes), then the VAT on purchase would have been recovered based on your VAT activity.
When you deregister there will be a deemed supply of the unit but if you have not opted to tax the unit and the unit is over three years old, the deemed supply will be exempt and not liable to VAT.
An exempt deemed supply would make a difference if the unit was within the VAT Capital Goods Scheme - over £250k and within 10 years of purchase, but as it was only £100k that doesn't apply.
So in summary, if you didn't opt to tax and it is over three years old then there won't be any VAT to pay on the unit on deregistration.
www.gov.uk/hmrc-internal-manuals/vat-supply-and-co...
Edited by PF62 on Thursday 8th August 21:33
Edited by PF62 on Thursday 8th August 21:33
Edited by PF62 on Thursday 8th August 21:34
PF62 said:
The issues which have not been answered are what did you use the unit for, how old is the unit, and did you opt to tax - it doesn't matter what the seller did but what you did.
If you were using the unit for your own purpose and not renting it out (so no need to opt to tax - although a lot of people don't understand that, and that includes HMRC sometimes), then the VAT on purchase would have been recovered based on your VAT activity.
When you deregister there will be a deemed supply of the unit but if you have not opted to tax the unit and the unit is over three years old, the deemed supply will be exempt and not liable to VAT.
An exempt deemed supply would make a difference if the unit was within the VAT Capital Goods Scheme - over £250k and within 10 years of purchase, but as it was only £100k that doesn't apply.
So in summary, if you didn't opt to tax and it is over three years old then there won't be any VAT to pay on the unit on deregistration.
www.gov.uk/hmrc-internal-manuals/vat-supply-and-co...
Thanks both. To answer the Qs:If you were using the unit for your own purpose and not renting it out (so no need to opt to tax - although a lot of people don't understand that, and that includes HMRC sometimes), then the VAT on purchase would have been recovered based on your VAT activity.
When you deregister there will be a deemed supply of the unit but if you have not opted to tax the unit and the unit is over three years old, the deemed supply will be exempt and not liable to VAT.
An exempt deemed supply would make a difference if the unit was within the VAT Capital Goods Scheme - over £250k and within 10 years of purchase, but as it was only £100k that doesn't apply.
So in summary, if you didn't opt to tax and it is over three years old then there won't be any VAT to pay on the unit on deregistration.
www.gov.uk/hmrc-internal-manuals/vat-supply-and-co...
1 - yes, it is used solely by the business (light manufacturing and mail order), never rented out
2 - it is now 8 years old (actually, 7 years since my business purchased it)
3 - as far as I know, we did not opt for VAT (I will clarify with my accountant next week)
Against point 3, however, my reading had led me to believe that - in reclaiming the VAT paid at the time of purchase in the relevant quarter's VAT return - the business had implicitly opted for VAT.
The web page you have posted seems to be clearer than the others I found - https://www.gov.uk/guidance/opting-to-tax-land-and... and https://www.gov.uk/government/publications/vat-not...
I'll send that link to the accountant. It seems very straightforward.
Just seen that the relevant form for choosing to opt for VAT is VAT1614A, and I'm pretty sure I didn't complete such a form at any time. So the question is whether the accountant (or solicitor?) might have done so on my behalf.
I also discovered that it's possible to write to the Opt To Tax unit in Glasgow to find out. Replies are taking up to 50 days, it seems.
In any case, I will report back.
I also discovered that it's possible to write to the Opt To Tax unit in Glasgow to find out. Replies are taking up to 50 days, it seems.
In any case, I will report back.
Eric Mc said:
I thought "opted" VAT remained glued to the building?
No the option is a choice by each person in the supply chain, so the person selling to you having chosen to opt does not bind the purchaser to do the same.Escapegoat said:
3 - as far as I know, we did not opt for VAT (I will clarify with my accountant next week)
Against point 3, however, my reading had led me to believe that - in reclaiming the VAT paid at the time of purchase in the relevant quarter's VAT return - the business had implicitly opted for VAT. .
No. There are a lot of people (businesses, accountants and some in HMRC) who completely misunderstand this point.Against point 3, however, my reading had led me to believe that - in reclaiming the VAT paid at the time of purchase in the relevant quarter's VAT return - the business had implicitly opted for VAT. .
Opting to tax only has an impact on any supply you are making of the property. If you were making a supply of the property (e.g. renting it) without opting then the supply would be exempt (unless the building was 'new' - up to three years old or incomplete) and so you wouldn't be able to recover the VAT as input tax. To recover the VAT you would need to opt.
However if you are not supplying the property when you buy it but using it in your business for a taxable purpose (and by taxable I mean making supplies which are standard rated, reduced rate, or zero rated for VAT) then the supply of the building to you is linked to those taxable supplies and the VAT you paid is recoverable as input tax in the same way as anything else you buy for your business.
If the building cost over £250k and you disposed of it without opting within 10 years, then although you would have been able to recover all the VAT when you bought it as it was linked to your taxable supplies, you would then have to hand a portion back - dispose at 5 years, give half back, etc. However as this only cost £100k there is no adjustment.
Escapegoat said:
Just seen that the relevant form for choosing to opt for VAT is VAT1614A, and I'm pretty sure I didn't complete such a form at any time. So the question is whether the accountant (or solicitor?) might have done so on my behalf.
I also discovered that it's possible to write to the Opt To Tax unit in Glasgow to find out. Replies are taking up to 50 days, it seems.
In any case, I will report back.
An accountant or solicitor cannot opt on your behalf. The authority to sign the form is with a director, partner, or sole prop, or someone who has been given specific written authority to make options to tax - if you didn't sign the form or given written permission for anyone else to fill it in, then you should be fine - to clarify, this is a separate and specific permission different from the 64-8 form given to accountants to deal with HMRC.I also discovered that it's possible to write to the Opt To Tax unit in Glasgow to find out. Replies are taking up to 50 days, it seems.
In any case, I will report back.
dartissimus said:
If your company trades business to business, is there any advantage in deregistering?
The company's suppliers are (almost all) VAT registered, but it's a retail business and very few customers are VAT registered (maybe 1% by volume and a little higher than that by value).Still waiting for my accountant to get back to me and confirm the info above. Will update on that ASAP.
Escapegoat said:
dartissimus said:
If your company trades business to business, is there any advantage in deregistering?
The company's suppliers are (almost all) VAT registered, but it's a retail business and very few customers are VAT registered (maybe 1% by volume and a little higher than that by value).Still waiting for my accountant to get back to me and confirm the info above. Will update on that ASAP.
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