On The Spot Blogs
#Tax Myth 9 - Low Turnover B2Cs Should De Register For VAT ASAP
Timing is everything for these sole traders and limited companies.
Where a small B2C business is having a bad time, usually on the high street, their turnover may now be lower than in the past and under the VAT threshold of £77k over the last 12 months.
De registering for VAT is very tempting as it either improves your margins, or allows you to price more competitively, or a mixture of both.
Remember, however, that you've reclaimed VAT in the past on stock, fixtures, stationery etc.
What happens to this VAT?
In principle, you need to repay VAT previously recovered. The idea being that there should be a match between VAT recovered on supplies and the VAT charged on products or services.
If you hold stock on the day you de register on which you recovered VAT, you may need to repay that VAT.
If so, the solution is to run down your stocks and delay restocking until you have de registered.
For other goods and for stock whose value has fallen below cost, you assess their market value. If you purchased shop fittings 5 years ago, the chances are they have a low market value today.
If, in total, the net of VAT cost or market value of all relevant items is £5,000 or less, HMRC don't ask you to repay any VAT at all when you de register.
For small businesses with a reduced turnover, it's quite possible that this £5,000 threshold isn't breached. But if it might be, make sure you time your restocking or any other purchase accordingly.
When you prepare your final VAT return, remember to reclaim VAT on services associated with your VATable business, such as your accountant's fee!