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MAKING TAX DIGITAL Decide whether to deregister for VAT From April 2022 MTD will be extended to businesses that are voluntarily registered for VAT. You should consider your options of deregistration as soon as possible.
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Some businesses have no sales for many years but are VAT registered in order to claim input tax. For example a forester may be waiting for trees to grow so that wood can be sold in the future. There are two main reasons for voluntary registration:
input tax recovery, and prestige For VAT taxpayers who adopt spreadsheet accounting the extra hurdle of downloading bridging software to complete the electronic submission process should not be a big problem. It is the remaining VAT taxpayers that will face the biggest challenge.
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Deregistration option The only way to avoid the MTD compliance issues is to deregister and escape the VAT club. A business can deregister if it expects its taxable sales will be less than £83,000 in the next 12 months - historical sales are irrelevant. The decision will then depend on whether the loss of input tax suffered by deregistering will be greater than the extra cost and time of complying with MTD.
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However it would be unwise for a growing business to deregister if it expects to exceed the threshold in the next couple of years as it will then have to go through the registration process again. VAT on stock and assets Before considering whether to deregister because of the forthcoming MTD deadline make sure that there are no big output tax liabilities on stock and assets still owned on the final date of deregistration. Output tax is payable on the market value of stock and assets if input tax was claimed when they were initially purchased. There is a ”de-minimis”VAT figure of £1,000 so if the market value of all stock and assets subject to a VAT charge is less than £5,000 then no output tax is payable on the final VAT return. If the business uses the cash accounting scheme they will need to account for output tax on closing debtors on their final VAT return if they deregister. But they can claim input tax on closing creditors. This presents a possible cashflow challenge.
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Certified Public Accountants supporting local businesses with cost-effective accountancy and taxation service for many years.
We specialise in sole traders, partnerships, small limited companies and all types of self-employed businesses, as well as all aspects of accountancy and taxation, concentrating on the personal approach. Speak to Pete or Bernard, any time, for a free, initial chat. T: 01733 248 180 E: pnbird@birdandco.ltd or info@birdandco.ltd
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183 Main Street, Yaxley, Peterborough PE7 3LD
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Yaxley Gazette | August 2021 | T: 01733 757342 | E: info@yaxleygazette.co.uk | www.yaxleygazette.co.uk
