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HMRC internal manual

VAT Registration

The effects of death, insolvency and incapacity on registration: definition of incapacity

A person may be considered to be incapacitated for the purposes of regulation 9 if, as the result of a physical or mental health problem, he is temporarily or permanently incapable of controlling and managing his property and business affairs and, therefore, incapable of meeting his obligations under the VAT legislation.

You should only treat a person as being mentally incapacitated in those cases where a medical determination has been made that a taxable person has a mental disorder within the meaning of the Mental Health Act 2003 as amended by the Mental Health Act 2007 (MHA).

Under the MHA, there are various provisions for the care and preservation of the estate of the patient, whose estate is supervised by the Court of Protection which can appoint a personal representative to deal with the patient’s assets.

The question of whether a physical incapacity constitutes incapacity for the purposes of regulation 9 will depend on the facts of the case you are dealing with.

Being paralysed from the waist down is not likely to affect a trader’s ability to control and manage his business affairs. On the other hand, somebody in a coma will not be able to manage his business affairs so will be incapacitated for our purposes. These are clear examples, but there are bound to be grey areas where it is not immediately apparent whether the trader is incapacitated.