Goods held at VAT de-registration

Any goods or stock which are transferred from the business to the owner at either the cessation of trade or at VAT de-registration will be classed as a deemed supply made to the owner and this deemed supply will be subject to VAT.

In such a case, VAT will be charged on the replacement cost of the goods on the same condition as it is to an external third party. This is designed to stop traders incurring large VAT inputs on goods purchased shortly before de-registration and then using the goods personally. The final VAT return should report the goods retained as a normal sale.

When transferring the goods to yourself, you are not deemed to be a registered person and therefore you will not be able to reclaim the VAT on the deemed supply. There is, however, a de-minimus limit of £1,000 and therefore with the current standard rate of VAT at 17.5%, assets worth less than £6,714 will not be subject to VAT.

There are also income tax implications when you retain assets on cessation of trade, however the exact ramifications would depend on the type of assets retained and how they had previously been treated for tax purposes.

There are always tax planning opportunities when you are considering winding up a business and you should therefore seek professional advice as the timing of the cessation will affect the final tax liabilities as a sole trader.

Date published 5 Dec 2012