Claiming VAT on assets when re-registering for VAT

VAT Question

A sole proprietor client was previously registered for VAT but deregistered as his turnover dropped below the deregistration threshold. Although the client held some assets when he deregistered, he did not have to declare VAT on these as the stocks and assets he held at that time of deregistration were valued at below £5000.

The same sole proprietor’s turnover has now increased to a point where he is having to register again for VAT and is adamant that he can claim VAT on both goods he has purchased while deregistered but still holds when he re-registers for VAT but also the assets that he had purchased when he was previously registered and still holds.

VAT Answer

Your client is correct in regard to purchases made while he was deregistered but not in regard to the assets he purchased while previously registered.

The general rules ion Regulation 111 of the VAT Regs 1995, which govern the right to recover VAT incurred on goods purchased prior to registration and held at registration, do not differentiate between a first-time registration or a re-registration of a previously registered entity; both are a new registration.

Therefore, in the client’s case, where VAT has been incurred goods purchased during the time he was deregistered and still held at the time of re-registration, he is entitled to recover this VAT.

However, under the heading ‘Post Registration’ within their online manual VIT32000 HMRC confirm that Regulation 111 can only be used to recover VAT on assets that were purchased while previously registered for VAT if, at the previous deregistration, the business declared VAT on the value of those assets and it is that VAT that the business would be able to recover, apportioned if they only hold some of those assets at the time of the re-registration.