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HM Revenue and Customs Brief 1/12

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HM Revenue and Customs -Tax Authorities

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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.


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© 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.



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Article Published/Sorted/Amended on Scopulus 2012-01-24 13:35:00 in Tax Articles

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