Recovery of VAT incurred between deregistration and re-registration.

VAT Question

My clients turnover dropped below the deregistration limit about 3 years ago and so he deregistered and had to account for output tax on his stocks and assets at the time of deregistration. His turnover has now increased and he has had to re-register, obviously with a new VAT number.

Can he claim VAT back on the purchases he made during the 3 years that he was not registered, even though he was registered for VAT before?

VAT Answer

The simple answer to the question is ‘Yes’. The normal rules regarding recovery of VAT incurred prior to VAT registration apply to the new VAT registration, not the business that is registered, and therefore apply as equally to a business that has to re-registered for VAT as they do to new business registering for VAT for the first time.

However, VAT recovery on goods will only be allowed for goods actually purchased during the 3 years your client was not registered and not on those stocks and assets on which he had to declare VAT at the previous deregistration.

This is because, at the time your client deregistered, the stocks and assets are deemed to be sold by him as an existing VAT registered business to himself as a business that is not VAT registered.

Therefore, if your client ‘brings back’ those stocks and assets into his newly VAT registered business, they are deemed to be a sale from your client as a business that is not VAT registered and therefore, as no VAT would be chargeable on this deemed sale, there is no VAT to reclaim.

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