Deregistering from VAT. Will I need to repay claimed VAT?

GrooveController

Hi!

I voluntarily registered for VAT in April when I started my business as I knew that I had a lot of purchases to make that I wanted to reclaim the VAT on. I now don't have any further large purchases to make and I fall well under the VAT threshold. I am continuing my business but my question is, if I deregister from VAT now will I then have to pay back the VAT I reclaimed? 

For example. I bought a van that I use and will continue to use for my business. I paid £13,000 inc VAT and reclaimed the £2000 VAT. If I deregister now will I be forced to repay that £2000 to HMRC?

Many thanks for any advice!

Marcus.

Savvy_Sue

I tend to think that anything involving VAT is worth running past your accountant, did you take any advice before starting up and registering? 

MobileSaver

GrooveController said:

 if I deregister from VAT now will I then have to pay back the VAT I reclaimed? 

For example. I bought a van that I use and will continue to use for my business. I paid £13,000 inc VAT and reclaimed the £2000 VAT. If I deregister now will I be forced to repay that £2000 to HMRC?

The short answer is yes...

When you deregister from VAT you have to prepare your final VAT return as though you had sold the van at the current market rate including VAT. (Ironically given the recent surge in van prices you may even end up paying back more VAT than you reclaimed!)

If you think about it the system obviously has to work this way otherwise everyone would voluntarily register for VAT, reclaim all their input VAT and then immediately deregister.

GrooveController

Ok. That makes sense. I suspected that would be the case. Thank you.

MobileSaver

Also bear in mind that if you do deregister after having had such a large recent VAT repayment you are going to be a prime candidate for a VAT inspection where your last two VAT returns will be checked with a fine tooth comb. 

So make sure you double check everything before submitting your final return as any mistakes could prove very costly with penalties being anything from 15% to 100% on top of any underpaid VAT.