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VAT due on assets at deregistration

 By

SteveAllen

Sadly Steve Allen died in July 2011. His wife Leah would like to thank all those who know Steve and helped contribute to his success. She has recommends Steve's clients and anyone who is interested in this article topic to contact Rob McCann from “The Vat people” on (tel) 0161 477 6600 . Please make reference to Steve Allen.


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If a business is partly exempt and it de-registers for VAT it will, unfortunately, find itself in a difficult position.

When a business de-registers it has to account for VAT on some or all of its business assets and stock on hand.

It will not have to account for VAT if the total VAT due on the assets would be £1,000 or less.

It should exclude items on which it could not reclaim VAT when it bought them. These may be:

  •  goods bought from unregistered businesses;
  •  cars (except private taxis, self-drive hire cars and driving school cars on which input tax has been claimed);
  •  goods bought under a VAT second-hand scheme;
  •  goods used wholly for business entertainment;
  •  goods which have been directly attributed to an exempt business activity (unless some input tax relating to these goods was reclaimable through the partial exemption rules);
  •  land or buildings which were obtained VAT-free even though you may be using them to make standard-rated supplies (such as holiday accommodation or because you have opted to tax the property);
  •  goods not bought for business purposes; or
  •  goods bought before VAT was introduced on 1 April 1973, which were not relieved of Purchase Tax or Revenue Duty.

In the case of the flying club if it had not been able to recover any VAT on its gliders because they were only used for exempt purposes it need not account for any VAT on them at the time of de-registration. If it had included them as unattributable because there was both taxable and exempt use of them then it will have to account for VAT on them based on the full market value of them at the time of de-registration. This is clearly not fair but the rules on this are clear.


About the Author

Steve Allen is the Director of VAT Solutions (UK) Ltd, an established independent firm of Chartered Tax Advisers, formed by Andrew Needham and Steve Allen. Both not only are respected tax advisers, but have worked for both Customs & Excise and one of the top four accountancy firms for many years. This mean that their team know both sides of the equation and are truly experts in this field.

The company has a cross-section of clients from multi-national companies through to medium-sized and numerous smaller regional firms of accountants and solicitors. They produce a regular publication 'VAT Voice', which can be downloaded directly from their website www.vatsolutions-uk.com.



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Article Published/Sorted/Amended on Scopulus 2007-09-10 01:03:43 in Tax Articles

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