De-registering / Canceling VAT - Anyone had any experience with this?

[coffee_king]

Hi All
I'm surprised when I searched the forum that there was nothing found for the terms "Cancel" or De-register" for VAT.
After 3+ years of being in the "VAT Club" we are currently not turning over enough and so I am looking into deregistering for VAT.

HMRC certainly dont make it easy sounding on their site (I am not allowed to post URLs apparently on this forum but just Google
deregister vat
and its right at the top)

I have just calculated my VAT, performed an online return and paid my VAT for OCT/NOV/DEC 2011, so I guess now would be as good a time as any to cancel our VAT.

We are an online retailer who only sell goods (fashionable sportswear clothing) to the general public (not onwards wholesale to other businesses). So at no point would a customer ever have reclaimed VAT back themselves on their purchase.

We never put our prices up by 17.5%/20% when we became VAT registered and just took the hit ourselves (As our customers would definitely not have paid this increase).

Working out what is owed (if anything is really owed from 1st Jan 2012 to the date HMRC receive my form and state we are no longer VAT registered) seems like an absolute nightmare and I really dont understand most of what I'm reading off their website.

Has anyone had any experience with cancelling VAT?
Thanks

 

[Mitchells Bristol]

Hello there

Yes - done this numerous times for clients.

First things first, you need to download a form VAT7 - Application to Cancel your VAT registration. Fill this in and send it back to HMRC.

HMRC will then send you a note of the date of deregistration and a final VAT return to complete. So you just need to work out the value of your sales and purchases from 1 January 2012 to the date of deregistration and account for VAT on those.

You will also need to account for any VAT on your stock and assets held at that date, which is all explained on the form they send you.

Hope this helps.

 

[MyAccountantOnline]

Have a read here too it should help.

 

[coffee_king]

Thanks for your advise. Apologies if any of my responses below sound thick.

So you just need to work out the value of your sales and purchases from 1 January 2012 to the date of deregistration and account for VAT on those.

OK, so its like doing a shorter dated than normal tax return.

You will also need to account for any VAT on your stock and assets held at that date, which is all explained on the form they send you.

I take it this does not include anything from 1st Jan 2012 to deregistration date?
So also if I have say £10,000 NET worth of stock, I have to pay the 20% VAT back on all of it? So I'd have to pay the VAT man £2000?
Also the VAT on some of the stock was at 15% and some at 17.5%, so how would I also work that out?

 

[coffee_king]

Have a read REMOVED too it should help.

Hi
I have been reading this thanks (Although I wish it was written in layman's terms a little more as I'm having trouble understanding it), I am just not allowed to put outside links in my posts yet apparently.

 

[Scalloway]

According to this item from Accounting Web the rate chargeable on stock on hand is 20%, regardless of date of purchase.

http://www.accountingweb.co.uk/anyanswers/question/vat-stock-deregistration

I was surprised to be told by the VAT helpline that the VAT is calculated on current selling price of the goods, at the current rate of VAT

.

 

[coffee_king]

According to this item from Accounting Web the rate chargeable on stock on hand is 20%, regardless of date of purchase.

.

What if some of the stock is from a time when we WEREN'T Vat registered? (Very slow sellers)
I never claimed VAT back on it the first place, so do I still have to pay them 20% for this stock?

 

[Scalloway]

I assume HMRC's line of thought is that you are making a supply of the goods. If you were to sell stock today purchased before registration you would have to charge 20% VAT on it.

 

[mickeym]

Your situation sounds a bit more complicated but I had to de-register a company last year.

The paperwork was all fairly simple and all they wanted was a final quarter return from me. After that they sent me a certificate of de-reg.

They're probably becoming more and more used to businesses having to de-reg due to the climate though.

 

[coffee_king]

They make it so easy to become VAT registered, then make it overly complicated to change back if necessary after.
Also, I still dont see why it cant be done online?
You have to send a letter and wait 3 weeks for a response?
Are we living in the 1920s here?

 

[Sky Racer]

We found it very simple. VAT7 form completed, checked by our accountant, posted off and sorted three weeks or so later. We had no VAT liability on stock & assets held as the total value was below their threshold (around 7k) for repayment. Plenty of help on the matter on HMRC website too.

 

[David A]

So also if I have say £10,000 NET worth of stock, I have to pay the 20% VAT back on all of it? So I'd have to pay the VAT man £2000?
Also the VAT on some of the stock was at 15% and some at 17.5%, so how would I also work that out?

You need to be more creative in your thinking. The first thing to appreciate is that stock valuation is not a fixed science - and is certainly not what you paid for it in the first place.

If you have £10K stock, why not personally buy £3,100 worth of stock from the company. It'll cost you £3,620. You are then under the £7k limit and won't have to pay £2,000 VAT on your stock.

Once you are de-registered, leave it a month, say, then sell the stock back to the company for £3,620. Although you'll be hit with some of the VAT, at least you'll save over a grand.

Alternatively, do a stock re-valuation. Maybe the 'slow sellers' aren't worth the value on the accounts and should thus be written off or down valued. If your stock has a shelf life, either due to being perishable (even if this takes some years - for example, although contents may be fine, perhaps the packaging has faded in sunlight, thus must be sold at 'clearance price') or has become 'out-of-fashion', then it must be re-valued - probably below cost price, and maybe significantly less.

You might even be able to use a mixture of both.

Your goal is to get below £7k. Work at this even if it takes a month or so.

 

[internetspaceships]

You need to be more creative in your thinking. The first thing to appreciate is that stock valuation is not a fixed science - and is certainly not what you paid for it in the first place.

If you have £10K stock, why not personally buy £3,100 worth of stock from the company. It'll cost you £3,620. You are then under the £7k limit and won't have to pay £2,000 VAT on your stock.

Once you are de-registered, leave it a month, say, then sell the stock back to the company for £3,620. Although you'll be hit with some of the VAT, at least you'll save over a grand.

Alternatively, do a stock re-valuation. Maybe the 'slow sellers' aren't worth the value on the accounts and should thus be written off or down valued. If your stock has a shelf life, either due to being perishable (even if this takes some years - for example, although contents may be fine, perhaps the packaging has faded in sunlight, thus must be sold at 'clearance price') or has become 'out-of-fashion', then it must be re-valued - probably below cost price, and maybe significantly less.

You might even be able to use a mixture of both.

Your goal is to get below £7k. Work at this even if it takes a month or so.

Your goal is to get below 7K? Sorry but if you're serious about running a business and making a better living than having a job, then your goal should be to get to 14k. Or 140k

 

[Sky Racer]

The limit is not exactly 7k.. more like 6 now (VAT rate was lower when we cancelled our VAT reg) but if you want to file the VAT7 and reduce your liabilities then you can work out the VAT owed by calculating the value of goods & assets at the price you would expect to pay for them in their current condition.

If the total VAT on the relevant items is £1,000 or less, you do not need to pay any VAT. So if the relevant assets are all standard-rated, you don't have to account for VAT if their total value, including VAT, is £6,000 or less at the current rate.

 

[sallucy1]

I am a new business and have not filed my first VAT return, I registered in hast and now realise my turnover will be nowhere near 75k, I have not reclaimed VAT on any of my pruchases and as yet have not sold anything on which to charge VAT - can I now de-register, if so I do not understand the question regarding stock on the deregistration application

 

[Scalloway]

I am not sure if there is a minimum period of registration before you deregister. No doubt someone will advise if there is.

The question about stock on hand is to assess if you are above the minimum level to pay back any VAT that has been reclaimed. If you have not reclaimed any VAT on stock or fixed assets the answer will be zero.

 

[Jezclayton]

If you have £10K stock, why not personally buy £3,100 worth of stock from the company. It'll cost you £3,620. You are then under the £7k limit and won't have to pay £2,000 VAT on your stock.

Once you are de-registered, leave it a month, say, then sell the stock back to the company for £3,620. Although you'll be hit with some of the VAT, at least you'll save over a grand.

Would HMRC regard this as tax avoidance or is it likely to be regarded as acceptable?

 

[Scalloway]

If you are a sole trader it wouldn't work. The individual is VAT registered, not the business.

 

[Jezclayton]

In my case - It's a Limited company I want to de-register. So if I was to buy stock/assets off the company, de-register and then sell them back later how would HMRC be likely to view it?

 

[David A]

Would HMRC regard this as tax avoidance or is it likely to be regarded as acceptable?

Most of how I structure my business and dealings with my limited companies is designed to avoid tax while at the same time maximise my earnings.

Tax evasion is unlawful. However, as much as HMRC think otherwise, tax avoidance is the duty of every subject of this country - by arranging their affairs to pay the minimum amount of tax lawfully due, and not a penny more.

 

[David A]

In my case - It's a Limited company I want to de-register. So if I was to buy stock/assets off the company, de-register and then sell them back later how would HMRC be likely to view it?

It matters not how HMRC view the matter.

Ltd Co is a separate legal entity. The company sells assets to you, provides an invoice and you make payment. it's the same procedure no matter who the sale was made to.

 

[David A]

If you are a sole trader it wouldn't work. The individual is VAT registered, not the business.

True. I think in Ltd Co mode.

If the OP is a sole trader, then the sale must of course be made to some other person.