Deregistering from VAT

TomMc

I'm considering deregistering from VAT as my turnover will go well below the thresholds given consumer spending. Now wish to weigh up the costs and consequences of doing so. I'd like to be able to do part-time work for third parties without having to charge them VAT (from a competitiveness point of view) or the option to emigrate in the future, without having VAT registration complicating matters further.

If a person deregisters from VAT and doesn't/never held fixed assets but does hold stock for resale, will they be expected to pay 21% of the value of same up front, when they deregister? If the VAT rate goes up to 23% in January, would there be a benefit by doing so sooner rather than later? Would VAT rate applicable at date of cessation override any increase by the time revenue get around to doing their calculations?

Also with regard to VAT reclaimed down the years, do they make calculations based on the past three years only or go back to day one? In the past few years, I have paid more than I claimed back, but if I go back even further then it is a different story. But not largely due to claiming lots of VAT on business expenses but VAT paid out on imported goods from outside the EU.

Would appreciate any info or comments, Thanks.

Owen

I'm in a similar circumstance, I don't really hold stock, but I did claim VAT for all the equipment I bought at the start of my business and all the training too. I popped into the Revenue and asked about deregistering as it seemed pointless to be doing returns for such small amounts of money each bi-monthly period, and I was told I'd be liable for repaying the VAT I originally claimed. The reason was that otherwise everyone'd register for VAT, then deregister afterwards - totally understandable.

TomMc

Owen, yes I agree with you, there shouldn't be a net gain where capital assets or business expenses are concerned.

But where stock for resale is concerned it is slightly different. If I import some stock from outside the EU and pay the VAT as a registered trader, then reclaim it, it hasn't cost me anything yet in real terms. But if I deregister from VAT and then they want to clawback this amount, it has cost me. That's fine except when it comes to my current stock for resale, will they charge me 21% of its gross value as well (a portion of which relates to imported stock they have already levied me for). Trying to get my head around it, but is seems like I would be caught on the double. How would you highlight this or is it just tough luck.

smeharg

There will only be a clawback if you originally "elected" to register for VAT, ie your turnover didn't, or wasn't likely to, exceed the threshold but you registered anyway.

However, you need to notify Revenue that you want to deregister; notify then of all VAT payments made by you and all refunds paid to you for the preceeding 3 years. You must then repay any excess of refunds over payments to Revenue.

TomMc

Thanks Smeharg, the T1 v T2 balance on VAT3 over the years (analysis/breakdown) doesn't bother me. My main concern is if I hold stock for resale, most of which was imported from the EU (zero rated), would I have to pay 21-23% of the value of same. Would this be based on the purchase (cost) price to me or current market selling price (rrp) and what is the situation if some of it is obsolete and possibly not sellable at all?

smeharg

smeharg wrote: »

There will only be a clawback if you originally "elected" to register for VAT, ie your turnover didn't, or wasn't likely to, exceed the threshold but you registered anyway.

TomMc wrote: »

Thanks Smeharg, the T1 v T2 balance on VAT3 over the years (analysis/breakdown) doesn't bother me.

If you originally registered for VAT because your turnover exceeded the relevant threshold then there will be no clawback of purchase VAT, except where you got more in refunds from Revenue than you paid them (in the previous 3 years).

It is not T1 v T2 it is T3 v T4. I.e. the total of all the T4s less all the T3s for the previous 3 years. If all the T4s are greater than all the T3s you pay that amount to Revenue. There is some scope for negotiation depending on various factors.

If you registered for VAT despite your turnover not exceeding the threshold you must pay the excess of all the T4s plus all the T2s over the T3s (again for the previous 3 years).

What you hold in stock is not relevant whether it was purchased from another EU country or not.

While it might seem logical to you that you would have to pay the VAT you reclaimed on stock and are now going to sell without adding VAT (assuming you de-register), you have to remember that there is rarely anything logical when it comes to VAT!

TomMc

Thanks, yes I meant the amount payable (T3) and the amount repayable (T4) over the years, when subtracting T2 from T1. Taking the T3 and T4 figures over the years would balance out, so I'm, happy enough with same.

My main concern was stock on hands for resale.

"If you registered for VAT despite your turnover not exceeding the threshold you must pay the excess of all the T4s plus all the T2s over the T3s (again for the previous 3 years)".

Great that gives me something to work on and figure out the costs and consequences of deregistering. Thanks Again.

smeharg

TomMc wrote: »

Great that gives me something to work on and figure out the costs and consequences of deregistering. Thanks Again.

No problem. PM me if you need any help.

woodfix

can anyone tell me the advantages of deregistering for vat as oppesed to remaining registered as my turnover has dropped under the thresholh of €37500 i am self employed and why would an accountant advise me to stay registered as i do not have a lot of vat to reclaim against my sales ?