My client is a hairdresser and due to the current Covid-19 pandemic situation, her salon has been closed since mid-March. Prior to that she was VAT registered and significantly above the registration threshold. She has asked whether she can deregister from the beginning of her current VAT quarter, which spans 1.2. 20–30.4.20, as she has had to suspend trading for the foreseeable future until the lockdown measures ease.

There is no provision for retrospective deregistration unless the business has actually ceased to trade. In cases where it is the intention that trade will continue, cancellation of registration is only permitted if it can be demonstrated to the satisfaction of HMRC that “the taxable supplies in the period of one year then beginning” will be below the deregistration threshold, which is currently £83,000 (Paragraph 4(1) VATA 1994).

VAT Notice 700/11 Cancelling your registration, states:

“If you’re requesting voluntary VAT registration cancellation on turnover grounds, you’ll need to tell HMRC why you think your turnover is going to fall below the VAT registration cancellation limit. You may, for example, have reduced your opening times, lost contracts, or changed your business practices.”

However, the law prohibits deregistration under the 12 month forward look for a temporary suspension of trade. Paragraph 4(2) states:

“ A person shall not cease to be liable to be registered under this Schedule by virtue of sub-paragraph (1) above if the Commissioners are satisfied that the reason the value of his taxable supplies will not exceed £83,000 is that in the period in question he will cease making taxable supplies, or will suspend making them for a period of 30 days or more.”

In the current circumstances it is difficult to predict how long the lockdown will continue and affect trade and indeed how an enforced closure would be considered in the light of paragraph 4(2). As such it is unclear how HMRC would view a deregistration application on the grounds of future turnover, particularly if the business had been trading above the threshold prior to lockdown. The client would have to provide a monthly breakdown of turnover with a prediction that the period of enforced closure would extrapolate to reduce the turnover to below 83K in the forthcoming 12 months. This may be difficult to prove if a high demand for the client’s services is anticipated once lockdown is eased.

In summary therefore, the client cannot deregister from the beginning of the current period. She will have to account for VAT on takings until the salon closed and apply for deregistration under the 12 month rule if she feels a case can be made. Bear in mind that payments for 04/20 returns can be deferred until 31.3.21 without HMRC approval if wished.

“In association with Croner Taxwise”.

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