Revenue and Customs Brief 13 (2014): VAT deregistration of insolvent businesses
Published 6 April 2014
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Purpose of this brief
HM Revenue and Customs (HMRC) has in the past allowed insolvency practitioners to cancel the VAT registration of the business they have been appointed over at an early stage and account for VAT on any subsequent supplies using form VAT 833 Statement of Value Added Tax on goods sold in satisfaction of a debt. As part of a review of this process, HMRC has received legal confirmation that a deregistered business can no longer issue a valid VAT invoice. This could result in VAT registered buyers of assets from insolvent businesses being denied claims for input tax on the purchase of the assets in question. Consequently, HMRC can no longer allow such ‘early’ deregistration of insolvent businesses.
Even though trading may have ceased, VAT legislation requires a business to register and remain registered for VAT if that business is making taxable supplies above the VAT registration threshold. ‘Taxable supplies’ in that context would include asset realisations by an insolvency practitioner. Consequently, HMRC will now keep insolvent VAT registrations open until all trading has ceased and all assets are realised (though an insolvent business has the same right as any other business to apply to deregister on the grounds that it is continuing to trade but below the VAT registration threshold, if that situation applies). Insolvency practitioners are required to render VAT returns and appropriate payment, if any, for each VAT period until the registration ceases.
HMRC is happy to work with insolvency practitioners to resolve any difficulties which may arise from this approach, particularly in cases where all trading has ceased but the insolvency practitioner is experiencing difficulties in selling a property on which there is an option to tax. Insolvency practitioners should discuss any such cases with the National Insolvency Unit in Liverpool.
The National Insolvency Unit Helpline may be contacted on Telephone: 03000 540 808. The Helpline is available Monday to Thursday 8.30am to 5pm and Friday 8.30am to 4pm.
Issued 6 April 2014