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Overview Of How HMRC Can Cancel Your VAT Registration

Picture the scene or pick up a recent newspaper. It is the middle of May. The weather is glorious. The late afternoon sun burns brightly through your office windows making your mind meander towards racing back to your nearby flat and joining your latest offspring who has added to your ever-expanding family.

However, there is still work to be done. You and your staff have a team-building, morale-boosting and competition-beating meeting so you can leverage your latest strategic objectives.

As a result, you ask your other half who helps you in the office from time to time to round up the troops to take advantage of the terrace and lawn outside and to get Deliveroo to bring around some cheese and turn on the wine taps for you. It was quite a night.

BUT the following morning through a hazy hangover, you spot an HMRC brown envelope that has sprouted on your desk. Inside is a notice that your VAT registration was cancelled a week ago.

Can HMRC stop your business reclaiming the VAT on all the Gevrey Chambertin, Monrachet and truffle brie everyone hoovered up?

Yes, they can. HMRC can cancel your VAT registration. HMRC has such powers set out in paragraph 13 of Schedule 1 of the VAT Act 1994.

For starters, you probably could not reclaim VAT on your other half’s consumption if she was not on the payroll, even had your VAT registration been intact because you could only usually do so for employees in respect of business expenses.

VAT cancellation is one of HMRC’s weapons in its fight against missing trader fraud. If there is no VAT registration then HMRC cannot so easily suffer the losses arising from input VAT reclaimed fraudulently.

Flying Spur Limited

Cancellation of VAT registration is what happened to Flying Spur Limited in the case of Flying Spur Limited v Revenue & Customs [2022] UKFTT 7 (TC) that went to the Tax Tribunal.

Flying Spur Limited (“the Company”) ran an OFSTED-registered children’s home in Norfolk; it was registered under the Value Added Tax Act 1994 from November 2013 to September 2015, when the respondents (“HMRC”) cancelled its registration on the grounds that its supplies were exempt.

The Company’s notice of appeal was received by the Tribunal on 9 May 2019. In answer to “What is your appeal about?”, the notice of appeal said “HMRC claim you owe money”; in answer to “What is the amount of tax?”, it said “88,000”.

The notice of appeal said that the “desired outcome” was “to be able to register my company for VAT or to be able to reclaim VAT on all expenditure like all other Govt bodies and LAs to which Table applies…”.

VAT Registration And Cancellation

Registration For VAT

Notwithstanding that the Company was in the business of making exempt supplies due to the nature of its work, it nevertheless registered for VAT from 1 November 2013 saying in its application that it intended to make taxable supplies.

Cancellation By HMRC

On 24 April 2015 HMRC wrote to the Company explaining the exemption for services provided by state-regulated welfare institutions (including children’s homes) and stating that, because its only income was from exempt welfare services, the appellant company was not eligible to be registered for VAT, and action would be needed to cancel its VAT registration. This started to take effect from 16 September 2015.

Throughout the period in which it was VAT registered the Company’s supplies of services were OFSTED-regulated and directly connected with the care or protection of children – and so, by reason of item 9 Group 7 Schedule 9 Value Added Tax 1984 (see [29] below), its supplies were exempt from VAT.

The Company made no VAT returns in respect of the period in which it was VAT registered.

Winding Up Threatened

On 28 March 2019, HMRC informed the Company it had a debt of £88,452.40; and that if it did not pay HMRC by 26 April 2019, a winding-up order would be applied for against the Company.

Not Making Taxable Supplies

If you are not making taxable supplies then within 30 days you must notify HMRC of this fact.

As a result, the Tax Tribunal dismissed the appeal as the Company was making exempt supplies and it seems had incorrectly informed HMRC on its VAT application form that it would be making taxable supplies.

Explanation Of Conclusion Of The Tribunal: HMRC Can Cancel Your VAT Registration

The Tribunal alluded to the fact that the Company appeared to have a weak case and notably highlighted the issue as follows:

it is unclear to us what the benefit would be to the appellant company even if the appeal succeeded: continued registration of the appellant company after 16 September 2015 would make no difference to the exempt nature of the services supplied by the children’s home (which was not in dispute); and so, even if the appellant company had continued to be registered after 16 September 2015, input tax attributable to those children’s home services would be non-deductible

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This How HMRC Can Cancel Your VAT Registration page is not legal advice and should not be relied upon as such. This article How HMRC Can Cancel Your VAT Registration is provided for information purposes only. You can contact us on the specific facts of your case to obtain relevant advice via a Free Initial Consultation.

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