The Dangers of De-registration!

Charlie’s Café is struggling in the recession and turnover (excluding VAT) has fallen to £64,000.  Charlie applies to deregister but doesn’t reduce his prices once he is no longer liable to VAT as the extra profit is a great help. However, this brings his turnover to £64,000 x 1.2 = £76,800.  This means that he is trading above the threshold and liable to register again.  Reducing prices by 8% would take Charlie below the threshold, but still allow an additional contribution to profit of £6,600 and the hope of extra business through price reductions!

There is a deemed supply of stock and fixed assets on hand at date of deregistration on which VAT is due at the standard rate.  However, if the VAT due on the assets is less than £1,000 there will be no charge, so the value of stock and assets net of VAT could be as high as £5,000 and there would be no VAT to account for.

March 2011