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HMRC internal manual

VAT Registration

The effects of death, insolvency and incapacity on registration: incapacity of sole proprietors

Temporary incapacity

If it appears that the incapacity may only be short term or temporary, you should treat the person carrying on the business as the taxable person (under regulation 9) until the proprietor is capable of taking over the business again.

Bearing in mind the definition of incapacity at VATREG42550, it is unlikely that such a situation will arise very often.

Permanent incapacity

When a sole proprietor becomes incapacitated, and it appears that the incapacity may be long-term or permanent, there are two likely outcomes:

  • trading may cease altogether, or
  • someone may step in and carry the business on.

If someone else effectively takes over the business, you should register them as the taxable person. If, because the sole proprietor is unable to manage and control his business affairs, the business ceases altogether, you should deregister the business with effect from the date on which he ceased trading.

Only if there is strong evidence to suggest that the incapacity is temporary should you consider treating the person carrying on the business in the trader’s place as the taxable person under regulation 9. If you do decide to apply regulation 9, you should:

  • advise the trader’s stand-in of his obligations under the VAT Act 1994 using the standard letter in VATREG47250 
  • amend the trader’s name on the register to read, ‘X carrying on the business of Y’.