How to claim VAT after deregistering
Some companies will have deregistered for VAT at the end of March 2017 following changes to the flat rate scheme, please read our article about this. Essentially businesses that were benefiting from the tax savings of the flat rate scheme will have deregistered to avoid the new 16.5% rate for limited cost traders, which took effect on 1 April 2017.
What happens once I have deregistered?
Having deregistered there is still scope to claim input tax and bad debt relief after deregistration by using Form VAT427.
When a business deregisters, it is deemed to leave the flat rate scheme on the day before deregistration takes effect, so 30 March for deregistration from 31 March. It must therefore account for flat rate scheme tax on all debtor sales at this date if it used the cash based turnover method of calculation.
As an example Company A deregistered on 31 March to avoid being a limited cost trader. The company is deemed to have left the flat rate scheme on 30 March therefore meaning it must account for 20% output tax on all sales made on 31 March rather than under the flat rate scheme. It can also claim input tax on purchases for 31 March only. Basically it is accounting VAT in the normal way for one day only i.e. output tax less input tax for that day.
What are the benefits of Form VAT427?
By using Form VAT427 Company A can claim VAT from HMRC after deregistration in relation to:
- Bad debt relief – Any sales invoices that were included on a VAT return prior to deregistration that subsequently go bad then the output tax of 20% on those invoice can be reclaimed. You cannot reclaim VAT on bad debts under this option for four years and six months from the date when the relief became claimable.
- Any late purchase invoices received from suppliers after the final VAT return has been submitted but showing a date of 31 March. Where claiming input VAT on these items then original invoices will need to be submitted with the form to HMRC.
- Any purchase invoices dated after 31 March but which relate to the period before deregistration. A simple example of this is could be accountancy fees are raised in June 2017 but are for the year ended 31 March 2017. You cannot reclaim VAT under this option more than four years after the date it was incurred.