Registration and Deregistration of Value Added Tax (VAT) in a Business Formation UK


There are different tax policies in UK that need to be followed by individuals and every company that are established or in the process of business registration UK or register with companies house UK. Value Added Tax (VAT) is one of the tax policies applied on goods and services and in this blog we are going to discuss the registration and deregistration of VTA. We will further discuss the voluntary registration for VAT, the intending trader registration, exemption from registration, group registration, divisional registration and deregistration and its consequences.

What if a person wants to voluntarily get registered for VAT?

Even though a person’s turnover liable to tax is not above the limit of registration, he may make a decision to get registered for VAT anyway. That person cannot make the recovery of the input tax that he has paid on the purchases until and unless he is registered.

The registration done voluntarily proves beneficial in the case when some person intends to make the recovery of input tax applicable on purchases. As an example, take into consideration a trader having one input throughout the year that is equivalent to an amount of £1000, with an additional VAT of an amount equal to £200. He performs some work on the input and it results to be the only output for that specific year and he makes a decision to earn a profit of an amount equal to £1000. In the case if he is not registered for VAT, he will charge an amount of £2200 and his customer will not be acquiring any relief for any value added tax (VAT). In the case if he is already registered, he will make a charge of 2000 pounds and the VAT will be equal to £400. Then his customer will acquire an input tax of £400 that he will be able to make a recovery of, if he also happens to be registered.

In the case if the customer happens to be a person who is non-taxable, then his preference will be the cost to him as £2200 and in the case if he happens to be taxable, the preference will be a total price of £2000. Hence, in order to decide if one should register voluntarily or not, this might be dependent on the customer’s status. It may also be dependent on the outputs’ status and the image of the business formation UK of the trader that he makes a wish to project. It is important to note here that the business may look like a substantial business. The burden of registration, administrative in nature, should also be brought under consideration.

Trader Intending for Registration

If a trader makes a choice to be registered, then he is authorized in the case if satisfies HMRC that he is in the process of business registration UK and has the intention of making taxable supplies. But as soon as he gets registered, he is then supposed to give a notification to the HMRC within a duration of 30 days in the case if he does not have the intention of making taxable supplies anymore.

Request to Exempt from Registration

In the case of a person who only makes supplies of the zero-rated type, then he may make a request to exempt him from the registration of VAT. The trader is then supposed to give a notification to the HMRC in the case of any material change in the supplies’ nature.

There can also be a case whereby the HMRC permits the exemption from registration. This occurs if the supplies’ small portion are rated at a standard rate, under the condition that if the trader is registered, he would acquire the repayments of VAT in a normal way.

Registration in the Form of Groups

The companies that are under one common control, they can then apply for the group registration. There are some benefits and effects of the registration in the form of groups that are as under:

  • In general, any supply of services or goods is disregarded for the purposes of VAT, that is made by a member of one group to another member of the group. This results in the reduction of the accounting period of VAT.
  • Any VAT that is to be paid upon the goods’ import by a member of the group should be paid by the member who is the representative.
  • Every group of VAT should make an appointment of a member in the form of a representative who must account for the output tax of the group and the input tax, hence making a simplification in the accounting of VAT and permitting the repayments and the payments of VAT that are to be netted off. However, all the members of the group are liable to any VAT, severely and jointly, that is due from the member who is the representative
  • In general, any other supply of services or goods to or by a member of the group, is taken into consideration in the form of supply to or by the member who happens to be the representative.

When company is register with companies house UK, then it should be noted that companies in the form of a group, that is, two or more companies, qualify to be treated as members of a group under the condition that each of them resides or established in the UK or possesses a fixed establishment in the UK and one of the companies is the controller of every other company or one person who can be either an individual or it can be an holding company that controls all of them or two or more people who are carrying out a business in the form of a partnership and controls all of the companies.

The rules of anti-avoidance refrain a company from belonging to a group of VAT where it would otherwise be eligible but in actuality, run for the advantage of a third party that is external entity.

At any time, one can make an application to form, end, remove or add to a company from a group of VAT. It can also happen that the applications are rejected when HMRC senses that it is mandatory to do so or this can also be done in order to protect the revenue. However, in the case if any company is not eligible to belong to a group of VAT anymore, because of the failing of the test group, then the company should leave the group of VAT even in the case if revenue is not lost.

A registration of the group, or any change made to it, will be applicable since the date the application is acquired or received by HMRC in spite of the fact that there may be an earlier or later effect to the applications. Hence, it is possible to apply beforehand for the changes in the group and it may also be possible to apply for the changes that have an effect, retrospective in nature. Still, the HMRC have the timeline of 90 days in order to refuse or reject an application.

The case of the individual companies that exist in the form of groups only for the purposes of company law, can still opt for the registration distinctively and can choose to stay out of the group of VAT. This can be done in order to make sure that a company that makes the exempt supplies, does not go for the restriction of the recovery of the input tax of a group as a whole.

Registration of a Company that is divided into Various Units

In the case of a company that is divided into various units and each unit makes the preparation of accounts, are eligible to apply for the divisional registration. Convenience of administration is the only benefit of the divisional registration. It should be noted that the divisions that are separate are not considered as the separate taxable persons and the company itself still remains liable for VAT. However, in the case if the VAT is accounted for separately by the divisions, it enhances the chances of the payment on time, since the data for the divisions do not need any consolidation prior to the completion of the returns.

In a broad manner, the conditions in the case of divisional registration include:

  • HMRC must be satisfied and content that the difficulties can occur while submitting a single return of VAT before the due date
  • The registration of each division should be done even when the turnover of that division is beneath the limits of the registration
  • The divisions should be independent in nature, units of self-accounting, carrying on various activities or performing an operation in distinct locations
  • Input tax that is apportioned or attributable in order to exempt the supplies for the company as a whole should so low that the recovery of all of it can be done, excluding the VAT that can never be recovered due to the expenditure’s type
  • For the same periods of tax, every division should make the returns of VAT
  • The issuance of the invoices of VAT should not be done for supplies that are between the divisions of the same company since they are not the supplies for the purposes of VAT.

Types of Deregistration

When is a person eligible for voluntary deregistration?

A person can go for a voluntary deregistration in the case if HMRC is satisfied that the cost of his supplies liable to tax, that are the sum of VAT minus the supplies of capital assets, in the next period of one year will not be more than an amount of £77000. However, the deregistration of the voluntary type is not permissible if the reason for the expected fall in the value of supplies liable to tax is the pausing of supplies liable to tax or the suspending of supplies liable to tax for a duration of 30 days or more in the year ahead.

HMRC will go for the cancellation of a registration of a person from the date of request or from a later date that it has agreed upon.

Mandatory Deregistration

It can occur that the deregistration of the traders may be done on a compulsory basis. If a person fails to make a notification for the requirement to deregister within 30 days, then this might result in a penalty. Mandatory or compulsory deregistration can also result in the reclaim of the input tax by the HMRC that has been recovered by the trader in a wrong manner from the date on which he was supposed to get de registered.

There are some other points to be kept under consideration. These include:

  • In the case if HMRC grants registration, then the treatment of the registration is done as void from the beginning.
  • There can occur a scenario where a person is deregistered in a compulsory manner if HMRC are satisfied that he no longer intends to or makes the supplies liable to tax.
  • There can also be a requirement of cancellation of registration for the changes in the legal state, such as a single trader that becomes a partnership, a partnership that reverts to a sole trader, a business that becomes incorporated and an unincorporated business replacing a company.

What happens after deregistration?

When deregistration occurs, then VAT becomes chargeable on all capital assets and stocks in a register ltd UK business on which the claim of input tax is made. If the chargeable VAT is not more than an amount of £1000, its payment does not need to be made.

This specific charge of VAT is not applicable in the case if a business or a distinct part of it, is sold out in the form of a going concern to another person who is liable to tax or a person who becomes a taxable person immediately after the transfer is made.

If the original owner pauses being taxable, then the present person who owns the business may also acquire the existing number of VAT. If this is done, the takeover of the transfer of rights and liabilities is done on the day of transfer.

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