VAT comes up in the Advanced Tax exam for at least 10 marks and one of the areas due to be examined in September 2022 is VAT Deregistration.
There are 2 types of Deregistration-optional and compulsory
A business can choose to deregister voluntarily if the expected annual turnover is less than £83,000 and the deregistration is effective from a mutually agreed date.
At this point, the business must pay a final VAT charge based on the market value of inventory and non-current assets on which input VAT was recovered earlier.
However, the final VAT charge is only payable if it more than £1,000.
The other type of VAT Deregistration is compulsory and is triggered by a cessation of trade. The business must notify HMRC within 30 days of the date of cessation and the deregistration usually takes effect from the date of deregistration.
Once again, the business must pay a final VAT charge based on the market value of inventory and non-current assets on which input VAT was recovered earlier.
However, the final VAT charge is only payable if it more than £1,000.
Once aspect to watch out for is the transfer of a business as a going concern such as a sole trader incorporating to a limited company or an asset strip where a company sells its trade and assets.
Here, a cessation of trade occurs so the business must deregister in the usual way. However, the transfer of a going concern (TOGC) is outside the scope of VAT and no final Vat charge is payable as long as 4 conditions are satisfied.
1. Transfer of business as a going concern.
2. No change of trade
3. No break of trade
4. Buyer is VAT registered or becomes VAT registered within 12 months
This means that no final VAT charge is payable, and no VAT needs to be charged on the assets transferred to the new entity.
One trap to watch out for is commercial buildings where an option to tax has been made.
The option to tax takes precedence over the going concern exemption and VAT must be charged on these buildings.
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