MHA | VAT: Property on hand at deregistration

VAT: Property on hand at deregistration

Posted on: December 19th 2022 · read

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HMRC is sending out assessment letters to businesses applying for VAT deregistration who have in the past, opted to tax land and buildings.

Many businesses do not realise that VAT is due on assets on hand valued at more than £6,000 on the final VAT return, which will include property subject to an option to tax.

If you need to deregister your business from VAT, you should note the following:

  • You may have to account for VAT on property or goods on hand at the time of deregistration; and
  • You may have to make a final capital goods scheme adjustment if you still have assets in the capital goods scheme.

When you cancel your VAT registration with goods (including property) on hand, you make what is known as a deemed supply of these as though they had been sold at their market value.  The rule exists to claw back input tax previously recovered on the assets and requires the business to account for VAT on the assets on its final VAT return.  This will be a cost.

As HMRC is targeting property businesses which are deregistering and has a system in place to check deregistration applications against the register of options to tax, property businesses should take care when considering deregistration and seek specialist VAT advice if they are unsure of the risks. 

In summary, deregistration of a business holding property needs careful planning to avoid significant VAT costs.

For more information please contact us about how we can help you with this process.

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