Published on Friday, 02 July 2010 00:00
The effect of the recession on small businesses has, in a number of cases, reduced turnover to below the threshold for VAT registration. A couple of our clients have enquired as to whether they should now deregister for VAT.
If a company does deregister they no longer have to add VAT to their prices and this could give them an advantage in terms of reduced pricing. Alternatively, they could of course, maintain their existing prices and increase their profits.
There are however some issues that are significant and need to be taken into account when considering whether to deregister:
The current value of the business assets such as stock and any equipment should be determined. If the value of VAT on this value is greater than £1000 it has to be repaid to HMRC. For example if the combined assets are £5800 the VAT @17.5% on this is £1015 and this could potentially need to be repaid to HMRC. This cost could significantly reduce the advantages of deregistering.
The situation becomes more complicated if capital goods are also involved. The Capital Goods Scheme (CGS) covers the purchase of buildings, land and also the extension and refurbishment of buildings where the cost exceeds £250,000 and VAT has been reclaimed on such purchases. Under this scheme there is a 10 year ‘adjustment period’ where there will be liability to repay a proportion of the VAT previously reclaimed.
If you would like to discuss the benefits and pitfalls of both registration and deregistration for VAT then please CALL US NOW on (01635) 884270 or use the Contact Us tab above and we will contact you and arrange to meet to discuss your situation.
