Q: My client is a VAT registered sole trader. Seven years ago he brought a building to operate his graphic design business from. He was not charged VAT on the purchase of the building. The building needed work doing on it and client decided to split the office into two units with the intention to use one himself and rent the other out to an unconnected 3rd party. The work required was quite substantial with expected costs of £100k+VAT being incurred so he opted to tax the building to enable full VAT recovery on costs charging VAT on the rent to the tenant.
Client now unfortunately has ill-heath so is closing his business and wants to deregister. His only assets are the building, a computer worth about £400 and some old office furniture. The office rent is £24000 per annum. Will he have to pay any VAT to HMRC on his assets when he deregisters?
A:
- No. Although the sale of the property would ordinarily be a taxable supply due to the client's OTT he was not charged VAT when he bought the building originally and therefore as per para 7.3 of VAT notice he does include the property in his assets on hand at deregistration. Deregistration does not however automatically cancel the client's OTT therefore the rents charged to tenant would still be classed as taxable supplies. Should client sell the building after deregistering this will also be a taxable supply and would likely result in the client being required to re-regsiter for VAT unless of course the sale can be treated as a VAT free TOGC or the client meets the requirements to revoke the OTT.
- The value of the other assets on hand at deregistration (on which VAT originally claimed) is below the £6000 threshold therefore no VAT would be payable on those at deregistration either. See para 7.1 of VAT Notice 700/11.
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