Following a review on the VAT registration of insolvent businesses, HM Revenue & Customers (HMRC) issued Brief 13/14 on 6th April.
HMRC announced that it has ‘received legal confirmation that a deregistered business can no longer issue a valid VAT invoice. This could result in VAT registered buyers of assets from insolvent businesses being denied claims for input tax on the purchase of the assets in question.’
In the past, insolvency practitioners were allowed an early cancellation of VAT registration for their appointed business, and use the VAT 833 Statement of Value Added Tax form to issue VAT invoices for any subsequent supplies.
Now, HMRC will not allow early deregistration of insolvent businesses, and will maintain the VAT registration ‘until all trading has ceased and all assets are realised.’ The exception to this rule is where the business is making taxable supplies below the VAT registration threshold.
Insolvency practitioners are now required to ‘render VAT returns and appropriate payment, if any, for each VAT period until the registration ceases.’ They will have to consider earlier asset realisations to avoid the additional administration and cost involved in keeping VAT returns up to date. If they file VAT returns and fines are levied against the business as a result then arguably those fines will be costs of the administration/liquidation.
You can read Brief 13/14 in full on the HMRC website.