Vat Returns and Deregistration

Introduction

i What is value added tax?

Value Added Tax is a tax on the supply of most goods and services. It is referred to in this chapter as “VAT”.

ii Who collects VAT?

Collection of VAT is done by a government department – HM Customs and Excise.

A company, partnership or an individual that supplies or intends to supply or services over a certain turnover which are subject to VAT must be registered under the Value Added Tax Act 1983, and is known as a “trader”. The trader is responsible for charging its customers the correct amount of VAT and paying it over to the government (HM Customs and Excise) after deducting the amount of VAT the trader has had to pay its own suppliers.

iii How does VAT reach the government?

At the end of every VAT accounting period, usually 3 months, the trader is required to account to HM Customs and Excise for the VAT input and output tax for that period. (See below for an explanation of “input” and “output”).

iv Who should complete the VAT returns in a bankruptcy or liquidation?

The Official Receiver should require the bankrupt or company director to complete a return for the last business period (ie from the date of the last return to the date of the bankruptcy or winding-up order). The Official Receiver should ensure the bankrupt or company director does complete a return if:

1.  the Official Receiver is trustee or liquidator, and
2.  a VAT refund is an asset in the bankruptcy or liquidation, and
3.  a lesser amount or nothing at all is owing to other government departments. 

v When will the Official Receiver have to complete a VAT return?

After the bankruptcy or winding-up order the trustee or liquidator had to complete VAT returns unless the bankrupt, partnership or company in liquidation has been deregistered for VAT, because the trustee or liquidator has to account for the output VAT (s)he has paid and the input VAT (s)he has received.

vi Explanation of “input” and “output”.

Input VAT will be incurred on bills which the Official Receiver has to pay, eg auctioneer’s charges. Output Vat has to be charged in selling the assets of a bankrupt or company in liquidation, except that only the business assets of a bankrupt are subject to VAT. It must not be charged in selling the bankrupt’s private assets and VAT paid as an expense in dealing with private assets must not be included as input tax on the VAT return.

viiWhen the assets are low in value.

The Official Receiver only has to account for VAT in cases where the VAT charged on assets exceeds £250 – at present 17.5% VAT rate that means the value of the assets will be more than £1,428 which with £250 VAT comes to a total of £1,678.

viii IP cases.

If an insolvency practitioner is appointed trustee or liquidator it will be his or job to deal with VAT.

ix VAT on fees.

Some of the fees charged by the Official Receiver are subject to VAT. Generally, those fees which are charged for a specific service to the estate.

x Example calculation.

A builder registered for VAT buys his materials for £300 and the VAT at 17.5% is £52.50. He pays a total of £352.50. His input VAT is £52.50.

He then completes the job and charges the customer £650 plus VAT at 17.5% which is £113.75. The customer pays £763.75 to the builder. The builder’s output VAT is £113.75.

At the end of the VAT accounting period the builder includes the £113.75 in his output VAT and the £52.50 in the input VAT on the VAT return form. He then deducts the input tax £52.50) from the output tax (£113.75) and pays the balance of £61.25 to HM Customs and Excise.

If the builder had bought a lot of materials for a job he had just finished or invoiced at the end of the VAT accounting period is input VAT might be more than the output VAT, and he would ask HM Customs and Excise to pay him the difference.

Notes

1. This chapter replaces Administrative Desk Instruction ADI 23 B/L.

2.  Each trader registered for VAT is given an individual “VAT registration number”

and this must be quoted in all correspondence with HM Customs and Excise.

Where can I find out more?

Technical Manual Chapter 78, revised October 1993.

Tolley’s Tax Guide 1994-95, Chapter 7.

(The items above are in the Core Collection available to all members of staff).

Cashier’s Manual paras. 12.11.4, 12.11.5, 12.13.5, 12.13.6 and 12.7.

Procedure 

LOIS screen references are given in italics eg (D073).

Insolvencies in which VAT does not exceed £250.

1 If the VAT due on realisation of assets is not likely to be more than £250 then deregistration may be allowed. Completion of form VAT 100, ie a nil return, is not required.

Deregistration.

2 In an insolvency there is a procedure for HM Customs and Excise to deregister automatically.

3 About 2 months after the making of the bankruptcy or winding-up order HM Customs and Excise will send form VAT 167 (Deregistration Enquiry) to the Official Receiver. If not returned to them they will, after 30 days from the issue of the form, input a nil return on behalf of the Official Receiver and deregister the bankrupt or company in liquidation without any further action by the Official Receiver.

4 Deregistration is not appropriate in any of the following circumstances.

a the appointment of aninsolvency practitioner as trustee or liquidator is expected

b the business of the bankrupt or company in liquidation is to be continued.

c an application has been made for

I a stay of advertisement or proceedings

ii annulment or rescission

iii an appeal against the bankruptcy or winding-up order

d after the bankruptcy or winding-up order the amount of VAT payable on the estate is likely to be more than £250 (ie realisations and any income from continued trading including VAT exceed or are likely to exceed £1,678).

5 In any of the above situations the VAT 167 must be completed and returned to HM Customs and Excise giving the reason for not deregistering the business.

6 If it is not clear from the office file, ask the examiner or AOR responsible for advising the support unit whether the bankrupt or company in liquidation used cash accounting, annual accounting or special retail schemes in making VAT returns. If the insolvent did use of these methods of accounting for VAT, completion of the return should be carried out by, or on the detailed instructions of, an examiner or AOR and this instruction would not apply.

Completion of VAT return (VAT 100 or VAT 193) where VAT exceeds £250.

7 Obtain VAT return form from HM Customs and Excise (a form issued before the bankruptcy or winding-up order should not be used).

8 Obtain a copy of the estate ledger account.

9 Check the ledger account and the office file (an up to date estate record book is particularly useful) for details of all assets realised, payments made, and the VAT charged to an by the Official Receiver).

10 Check that the business was not carried on by the Official Receiver after the bankruptcy or winding-up order. This is unusual and even then a special manager will normally have been appointed and either the special manager or an IP trustee or liquidator can be expected to deal with VAT.

Filling out the return form.

11 [BOX 1] enter the total amount of VAT on
assets sold and any trading receipts

[BOX 2] enter “NONE” (unless instructed otherwise by the examiner or AOR)

[BOX 3] enter the total as at box 1

[BOX 4] enter the total amount of VAT paid on items charged to the estate account such as the fees of the Official Receiver’s agents (*see note below) and the realisation fee.

[BOX 5] enter the difference between the amounts in boxes 3 and 4. If this is a positive figure then this amount must be paid to HM Customs and Excise. If it is a negative figure this is the amount reclaimed from HM Customs and Excise as an asset in the bankruptcy or liquidation.

[BOX 6] enter the total amount of the assets sold and any trading receipt (excluding VAT).

[BOX 7] enter the total amount of agents and professional fees and other costs of the estate excluding VAT.

[BOX 8] enter “NONE 2 (see Box 2).

[BOX 9] enter “NONE” (see Box 2).

* Note: although agents will usually account “net”, deducting their charges from the sale proceeds and sending the balance, the VAT return must contain the full amount of output VAT charged to those who bought the assets, the input VAT on the full amount of the agents’ charges, and the gross realisation proceeds in box 6.

12 Complete the declaration at the end of the return for “the Official Receiver and liquidator/trustee in bankruptcy” and submit to the OR or AOR for signature.

13 Take a photocopy for the file and send the VAT return using any prepaid envelope provided to:

The Controller, VAT Central Unit, Alexander House, Victoria Avenue, Southend-on-Sea SS99 1AA

14 HM Customs and Excise will accept form VAT 193 (Final Return) at any time instead of a VAT 100. Once this has been sent to them they will deregister without further notice to the Official Receiver. The boxes on form VAT 193 are the same as those on VAT 100.

Enter details on LOIS (CA28).

After deregistration.

15 If after deregistration it is necessary to claim input tax, ask HM Customs and Excise for form VAT 426 (Claim for Input Tax after Deregulation).

Click HERE to view the flowchart for VAT Returns and Deregistration