Andrew Needham looks at how businesses can reclaim VAT even after they have de-registered for VAT.
You might think that once a business has de-registered from VAT it would no longer be able to reclaim any VAT; but this is not the case.
For example, a smaller subsidiary in a group of companies is now dormant and no-longer trades, so the owners decide to deregister it from VAT. A couple of months after deregistration, the company receives invoices from its accountants for the preparation of the annual accounts and for deregistering it. It also gets an invoice from the solicitors for legal work concerning a disputed contract while the company was trading and registered for VAT. But now the company has de-registered from VAT, is there any way of claiming the VAT back?
Making a claim
There is a procedure and, surprisingly for HMRC, it is not that complicated to make a claim. HMRC says that if a business incurs input VAT after the date that it has deregistered for VAT on services relating to taxable supplies it made before it was deregistered and sent in its final return, it can claim that VAT back using a special form.
There is no relief from VAT on goods supplied to a business after the date of cancellation of its registration or on services that are not attributable to its previous taxable supplies.
A business can make the claim by completing a form VAT 427 business, which can be downloaded from the Gov.uk website. It can be completed online, but it has to be printed off and sent to HMRC, along with the original invoices. The claim has to be made within four years of the date the supply was made to the business.
Other points
Businesses are not limited to just one claim. So, in the above example, if the business receives the accountant’s invoice first and makes a claim and then get the solicitors’ invoice two months later, it just completes a new VAT 427 and sends it to HMRC.
These forms can also be used for making bad debt relief claims, and for adjusting input VAT errors for VAT that you had failed to reclaim while registered for VAT (effectively voluntary disclosures) following deregistration. When the claim relates to errors on previous VAT returns, this form can only be used for errors less than £1,000; claims for more than this have to be made on form VAT 652.
Claims for VAT that was not claimed while the business was registered can also be made for goods as well as services – so if a business finds an invoice for some stock purchases, which it had forgotten to claim at the time, it can use this form to reclaim it.
A business that has deregistered for VAT and is in liquidation can also claim back the VAT on services, unclaimed VAT from previous returns, and make a bad debt relief claim by using a Form VAT 426. If the business is insolvent, it need not send in invoices if the claim is for less than £20,000.
These forms can also be used to claim back the VAT on administrator’s and liquidator’s fees.
If the business was partly exempt or had non-business activities, it can only claim back its VAT in proportion to its taxable activities at that time.
Practical Tip:
Just because a business has deregistered from VAT, that does not mean it can’t claim some more VAT back after deregistration if it relates to services relating to making taxable supplies while it was registered, errors made while registered (if less than £1,000) and claims for debt relief.
