Treatment of Stock and Assets at Deregistration

In summary, your client is likely to be required to pay VAT on a deemed supply of the van and on other goods and assets which they still have on hand when the registration is cancelled. However, they may not need to pay the full amount they originally claimed back.

When a business cancels its VAT registration, it makes a deemed supply of any goods that are still on hand at the date of deregistration, i.e., you act as if you have sold those goods.

If the VAT that would be due on the goods is £1000 or less, no VAT is due. The goods should be valued based upon what it would cost to replace them in their current condition, i.e., the current value rather than the price that was originally paid for them.

The business is not required to account for VAT if it is cancelling its existing VAT registration to register for the Agricultural Flat Rate Scheme.

Goods which the business did not claim back VAT on when they bought them can be excluded from the calculation. The exception is whether the goods were acquired as part of a transfer of going concern (TOGC), and the business must account for VAT on the value of these goods. The value of any intangible assets can also be excluded.

If the business owns land or buildings which it has opted to tax, VAT does not need to be accounted for if no VAT was incurred on the purchase, unless the property was acquired as part of a TOGC.

If VAT was claimed or it was acquired as part of a VAT, it must be accounted for based upon the current market value of the property.

If no VAT was incurred on the purchase and it was not part of a TOGC, the business does not need to account for VAT on de-registration but may be required to re-register for VAT and account for VAT when the property is eventually sold/transferred unless the option to tax can be revoked prior to the onwards supply or the sale is below the registration threshold at the time of the sale –

Where there is no option to tax, the deemed supply will be exempt with no VAT payable, but this may trigger a clawback of input VAT under the capital goods scheme or partial exemption principles.

If the business has any capital items on hand which fall under the Capital Goods Scheme, a final adjustment should be made on the final VAT return as per the rules of the scheme – covered in VAT Notice 706/2 – Capital Goods Scheme (VAT Notice 706/2) – GOV.UK.

Further HMRC guidance on stock and assets on hand at the date of de-registration can be found in VAT Notice 700/11 s7 – VAT Notice 700/11: cancelling your registration – GOV.UK.

Neil Maddison
VAT Consultant

For more information, please contact us at: consultancy@vantagefeeprotect.com