HM Revenue and Customs Brief 1/12
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Issued: 23 January 20
VAT: Pre-registration claims concerning VAT charged to a
previous registration of the same legal entity at deregistration
This Brief is for information only and explains HM Revenue
& Customs (HMRC) policy on claims for VAT on goods on hand at
registration that are received from persons who were previously
registered for VAT, de-registered and have now re-registered.
Background
When taxable persons register for VAT they often bring assets
into the tax system with them. There is a provision (regulation 111 of
the VAT Regulations 1995) that allows VAT to be recovered on such
assets within set time limits and with normal evidence of purchase,
provided the assets were intended for business use when the VAT was
incurred. The time limit for goods is four years and evidence is
normally in the form of a VAT invoice.
Where a taxpayer de-registers due to reduced turnover they
may have to declare output tax on goods on hand at de-registration on
which they have claimed input tax, under Paragraph 8 of Schedule 4 of
VATA 1994. This is a deemed self-supply when a person ceases to be VAT
registered, to ensure that their future consumption of the assets (as a
non-taxable person) is properly taxed.
If the business turnover increases again after
de-registration the business may once again become a taxable person and
have to register for VAT. If this occurs, and to the extent that the
goods are still held and will be used in the new VAT registration, VAT
on the deemed supply at de-registration can be considered when
establishing an input tax claim under regulation 111.
As there will be no VAT invoice to support any such claim,
HMRC’s policy was that this precluded input tax deduction under the
law. However the lack of any deduction offended neutrality (by
precluding the possibility of effective input tax deduction on some of
the cost components of taxed supplies). HMRC therefore allowed, by
informal concession, claims for relief on goods on hand from persons
who were previously registered for VAT under the same legal entity.
This is set out in V1-13, para. 6.10.
HMRC position
HMRC now consider that its discretion to allow alternative
evidence as set out in regulation 29(2) of the VAT Regulations 1995 can
be applied to claims under regulation 111 of the VAT Regulations 1995.
HMRC has therefore revised its policy in this area and accepts that
where proof that payment of VAT on the deemed supply was made to HMRC
on de-registration, this will be accepted as alternative evidence in
support of an input tax claim, allowing deduction under regulation 111
of the VAT Regulations 1995. As a result the concession is no longer
needed and is withdrawn with immediate effect.
Please note that under regulation 111 such a deduction will
not be available if outside the time limit specified (four years for
goods) or if the goods were not intended for business use at the time
of the deemed self-supply on de-registration. The most likely reason
for this is that the business ceased altogether at this point.
Also Regulation 111 does not apply if the asset is a capital
item falling within the capital goods scheme (land or buildings costing
over £250,000, computer equipment, ships or aircraft costing over
£100,000). Instead any input tax deduction must be under the capital
goods scheme. For this purpose the cost may be the value of the
self-supply or subsequent capital expenditure on the asset while not
registered, depending on the circumstances. If the asset is a capital
item then the four year limit does not apply. More information on the
capital goods scheme can be found in Notice 706/2 Capital goods scheme
and paragraph 13 covers registering with an existing item.
About the Author
© Crown Copyright 2012.
A licence is needed to reproduce this article and has been republished
for educational / informational purposes only. Article reproduced by
permission of HM Revenue & Customs.
