Andrew Needham outlines how you can reclaim input tax, even after you have deregistered for VAT.
The right to deduct input tax stops at the date a business deregisters for VAT. However, VAT can be reclaimed where services supplied after the date of deregistration relate to the business activity carried on while the business was registered.
This also applies when the deregistered business did not claim input tax to which they were entitled while registered, including that on goods, although these claims are subject to the four-year capping provisions. The right to claim back VAT on goods does not apply to goods purchased by a business after the date of deregistration.
Example 1: VAT on accountancy fees
A business falls below the VAT de-registration limit in June 2014 and de-registers for VAT in July 2014. The company’s financial year end is the end of May, but the accountant does not complete the annual accounts until December 2014 and then issues an invoice with a tax point of 30 December 2014.
Because the accounts are for the trading period 1 June 2013 to 2014 when the business was registered for VAT, it relates to its taxable business, so it is able to make a claim to HMRC for the VAT incurred on the accountant’s bill.
How to make a claim
Post de-registration input tax claims have to be made on a form VAT 427 and submitted to HMRC. Original documentation is needed if a claim is to be considered by HMRC, so all the original invoices need to be sent with the claim form.
A partly-exempt business submitting a form VAT 427 claim must carry out direct attribution if they made exempt supplies whilst registered for VAT because there is no de minimis limit following deregistration. Therefore, any VAT incurred which relates to the making of exempt supplies cannot be claimed at all. For non-attributable input tax (VAT on overheads such as rent, heat, lighting, etc.), the recoverable proportion applicable immediately prior to deregistration should be used.
Bad debt relief
A business can claim bad debt relief that becomes due after de-registration, provided it has accounted for VAT on the supplies and meets the conditions set out in VAT Notice 700/18: Relief from VAT on bad debts (www.gov.uk/government/publications/vat-notice-70018-relief-from-vat-on-bad-debts). Claims are also made using the form VAT 427.
Struck off companies
Once a company has been dissolved or struck off the register at Companies House, it ceases to exist. It is, therefore, very important that the business owners make sure the company’s affairs are settled before it is dissolved so that HMRC can repay any VAT due to it. Once it has been struck off, HMRC will not make any repayments for post de-registration VAT.
Flat rate scheme
A business on the flat rate scheme (FRS) cannot recover input tax on purchases other than capital items costing more than £2,000. However, when de-registering for VAT, a business is deemed to have left the FRS on the day before de-registering, and it therefore reverts to the normal VAT recovery rules.
Example 2: De-registration and the flat rate scheme
A business de-registers from VAT on 31 January. It is, therefore, deemed to have left the FRS on 30 January. Any purchase invoices dated after 30 January that relate to the business when it was registered for VAT – including goods or services – can, therefore, be reclaimed using a VAT 427.
Practical Tip:
When a business de-registers from VAT, it can still claim input tax (and bad debt relief) on costs relating to the business when it was registered using a form VAT 427.
