Length of time registered before deregistered

VAT Question

My client registered for VAT as a sole proprietor approximately 5 months ago as her turnover had reached the compulsory VAT registration threshold. However, since then she discovered she was pregnant and as she has had complications with previous pregnancies, she has chosen to slow her business activities down significantly, resulting in her turnover plummeting to a level way below the VAT deregistration threshold. Can she deregister from VAT even though she has only been registered for 5 months?

VAT Answer

The VAT legislation contains no specified period of time that a business must remain registered for VAT so in theory a business could register one day and deregister the next provided it can satisfy HMRC that it is eligible to deregister.

In the client’s case she registered for VAT on a compulsory basis, is now eligible to deregister and has a good reason for the short period VAT registration, so, as long as she declares any VAT due on stocks and assets at deregistration, I do not think HMRC would have any issue with her deregistration.

However, where a business registers for VAT voluntarily, recovers VAT incurred prior to VAT registration and then deregisters shortly afterwards without having to declare VAT on stocks and assets as the value of those stocks and assets is below the relevant £50000 limit at deregistration, HMRC will likely critically consider whether the motive behind registering for VAT was simply to gain a VAT advantage in claiming VAT on the stocks and assets.

If so, they could challenge the validity of the VAT registration on a tax avoidance basis which could result in the VAT registration being annulled and requiring repayment of the VAT previously claimed.

The shorter the time of VAT registration, the more likely HMRC are to challenge.

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