Goods held at VAT de-registration

I am currently VAT registered and I run my own business, however I am considering closing down my trade and going back into full time employment. The assets and stock which I have on hand now will not be sold and I will instead keep and use them in my own home. Are there any tax implications of this?

1st November 2010

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.

By Jo Nockels

Disclaimer: The information provided is based on current guidance (at date of publication) from HMRC and may be subject to change. Any advice shared here is intended to inform rather than advise. Taxpayer's circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this information, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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