Liquidator Can Often Reclaim VAT In A Liquidation After Deregistration

How Does A Liquidator Reclaim VAT In A Liquidation?

In order to reclaim VAT in a Liquidation, the company must at some point have been registered for Value Added Tax.

A Liquidator will incur expenses and costs in running the Liquidation. The Liquidation still means that the company is live. It however will not be trading except in very unusual circumstances.

Such a company will either still be registered for VAT or it will have deregistered. In both cases, it is usually (but NOT always) possible for the Liquidator to reclaim VAT in a Liquidation.

Reclaim VAT When Company Still Registered

If a company was registered for VAT prior to Liquidation then except if the Directors took steps just before the Liquidation to deregister it, then the company will still be registered for VAT at the point of Liquidation.

When a company is still registered for VAT the Liquidator may continue to be issued with VAT100 forms to fill in for HMRC. He or she can use the same to reclaim VAT due to the company in Liquidation accordingly. But what about if a company has deregistered?

VAT Claimed After Deregistration

Once a company has gone into Liquidation the Liquidator should issue a notice of the Liquidation to HMRC on a VAT769 form and this may lead to HMRC commencing deregistration.

However, it is also likely that the Liquidator will cancel the VAT registration of the company. So does that means a Liquidator will be unable to reclaim VAT on the costs and expenses of a Liquidation? NO!

Restrictions On A Liquidator Reclaiming VAT After Deregistration

A Liquidator can still reclaim VAT on the costs and expenses of a Liquidation and will often be able to do so but there can be some restrictions and exceptions.

The legal basis for repaying a VAT 426 claim is Regulation 111(5) of the VAT Regulations 1995.  This allows a trader to reclaim input VAT post-deregistration providing such a claim is “attributable to any taxable supply made by him in the course or furtherance of any business carried on by him when he was, or was required to be, registered”. 

The VAT notice 700/56 confirms the following general rules also apply to insolvency. You can however only reclaim VAT on services supplied after the VAT registration was cancelled which relate to taxable activities. There is no relief from VAT on goods and services supplied after the date of VAT registration cancellation or on services which are not attributable to taxable supplies.

In practical terms when a business has deregistered for VAT prior to the date of Liquidation and continued to trade, it appears to be the position of HMRC that the costs and expense of the Liquidation will not be attributable to taxable supplies. An example of such an occurrence will be when a company’s turnover drops below the VAT registration limit.

Therefore in circumstances where a Liquidator does not appear to have the cooperation of the Directors and has been unable to obtain the company books and records, he or she may be unable to determine if an attempt to reclaim VAT will be accepted by HMRC until for example the first claim is made.

Forms Liquidator May Use To Reclaim VAT

When a company has entered either Creditors Voluntary Liquidation or Compulsory Liquidation which means that the company is insolvent, the Liquidator can complete a VAT 426 Form to attempt to reclaim the VAT on the costs and expenses of a Liquidation.

In the case of a Members Voluntary Liquidation, the Liquidator can seek to attempt to reclaim VAT on a VAT 427 Form.

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Disclaimer: Reclaim VAT In A Liquidation

This page: Reclaim VAT In A Liquidation is not legal advice and should not be relied upon as such. This article Reclaim VAT In A Liquidation 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.