Reregistration with Goods On Hand?

HMRC have now clarified their policy on what companies who were previously registered for VAT, deregistered, and are subsequently re-registered should do about goods-on-hand at the point of re-registration.

When a taxable person registers for VAT they are often already a trading entity, and as such bring with them assets into the tax system. This is usually fine, as a regulation exists to allow the VAT to be recovered on such assets within a set time limit and with the normal evidence of purchase to demonstrate the assets were intended for business use when the tax was incurred. Likewise, when a taxpayer deregisters, they may have to declare output tax on the goods that they have on hand at the point of deregistration. This deemed ‘self supply’ ensures that the future consumption of the assets does not give them an advantage over a trader who was never registered and so didn’t benefit from reclaiming input VAT in the first place.

But what happens if the business re-registers for VAT at a later date? Those goods may still be held in the business, and will be consumed when the business is once again a taxpayer. Given that the output tax was paid over at de-registration it has always been argued that a second claim for input tax must surely exist as the business declared output VAT at the point of deregistration. However, the sticking point is that there is no VAT invoice to support the claim for input tax. Legally, this stops the claim in its tracks, although HMRC has allowed, by an informal concession, claims for relief on goods on hand from persons who were previously registered for VAT under the same legal entity.

HMRC has recently decided that its discretion to allow alternative evidence can be applied to claims made under these regulations, and as such has revised its policy. It will now accept that where proof that payment of VAT on the deemed supply was made to HMRC on de-registration, it will be accepted as alternative evidence in support of the input tax reclaim.

What this means for de-registering and re-registering traders is that keeping the paperwork relating to your de-registration is key. Without it you will no longer be able to reclaim the VAT you have already paid over at the point of deregistration.

To discuss what this may mean for your clients give us a call on our free helpline on 0870 420 8971 to ensure that any VAT they may be entitled to does not disappear. Remember, these rules are subject to the same time limits as an ordinary reclaim, which is four years for goods, so time is, as always, a factor.