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HMRC internal manual

Debt Management and Banking Manual

Debt and return pursuit: VAT: deregistered customers and revenue losses: introduction

Definition of de-registered debt

A de-registered debt is the VAT owed by a customer who has ceased to be liable for VAT registration.

This normally happens when they cease to trade or when their turnover falls below the VAT threshold. The customer can request voluntary de-registration or the Department can initiate compulsory de-registration (for example, if the customer is missing and can no longer be contacted).

When a business ceases to be liable to be registered for VAT they are required to notify HMRC under VAT Regulations 1995, regulation 5(3).

In line with the Government’s digital programme, HMRC’s current process is to ask the customer to provide that notification by cancelling their registration online by accessing the HMRC website online services or alternatively, they can complete the VAT 7 ‘Application to cancel your VAT registration’ which is available to download from the HMRC website. If the customer fails to do either, they remain registered and tax assessments continue to be issued leading to an increase in spurious debt.

The VAT Registration Service (VRS) have agreed a process whereby callers contacting HMRC to advise they have ceased to trade and wish to deregister can have the verbal request captured to a template for VRS to process the deregistration request.

Following contact with a customer who indicates a requirement to deregister, DMB staff should follow the ‘Non-written notification of deregistration process script’ on the Guidance Gateway Helpcards index and obtain the information required by VRS which includes:

  • contact name
  • contact address and phone number
  • date of cessation
  • reason; in other words, whether the business was transferred as a going concern, still trading but reduced turnover, ceased to trade, or other.

The customer should be advised that the information provided will be considered but HMRC may contact them if further details are required. They will be advised of the outcome in writing and the date of deregistration confirmed if HMRC are satisfied that deregistration is appropriate.

DMB should capture the information onto the VRS template and save it to EF. A copy of the ‘Non-written notification template’ is available on the Guidance Gateway Forms and factsheets index. A helpcard is also available on the Guidance Gateway Helpcards index to assist in the completion of the template.

The template should be forwarded in EF to VRS Tray 222NONOT.

Only DMB teams without EF access (for example, DMTC) are authorised to send the template by email to VRS, DMU/Dereg Referrals (VAT Directorate BTOps). The VRN and “Verbal Deregistration” should be included in the subject bar and IDMS updated as appropriate.

If you have established that a limited company is dissolved on Companies House but is still registered then compulsory deregistration is appropriate. The Wolverhampton Compulsory De Registration action stencil template should be captured and sent to (222 COMPD). You should contact any UI on EF to check with the officer shown that their enquiries will not be impacted by Compulsory deregistration action. Confirmation that you have consulted the UIs should be added in your referral to Wolverhampton.

If there is evidence already held; for example, a letter in EF saying they have ceased trading or a VAT 7 has been received, DMB should forward it to Wolverhampton Deregistration section via EF Dereg general (222DREGZ) for their action.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

The customer’s request for de-registration can be refused if either:

  • the details are vague
  • de-registration does not seem appropriate.

If the customer is in debt after de-registration DMB pursues the debt.

If the customer is in credit after deregistration, the National Registration Service will arrange for repayment.

De-registration does not inhibit the subsequent submission of a return or the issue of an Officer’s Assessment, but manual accounting and recovery procedures are required where the customer is either:

  • redundant and all periods have been dropped from the computer
  • unregistered and has not been given a registration number.