An existing business may become ’taxable' for VAT
purposes, for example when it begins to exceed the specified limit
(
BIM31515) for taxable turnover, and
conversely may cease if its taxable turnover falls below this
limit. The trader on registration can claim a special credit for
the VAT actually borne on any stocks and capital items on hand at
the time of registration. So far as it covers stocks on hand, the
deduction should be brought into Case I for the period including
the time of registration either as a separate credit or by
reduction of the opening stock in trade and/or purchases of that
period. In so far as the deduction allowed by HMRC covers VAT based
on capital expenditure, its precise treatment for IT etc purposes
might be complex. Where, as is likely to be normally the case, the
amount relates to plant coming within the new code of capital
allowances, it may be deducted from the pool of capital
expenditure. There is, however, no objection to treating it as a
Case I receipt if it is in fact so dealt with in the accounts.
If the trader's registration is cancelled they may (unless
the VAT due is less than £250) have to account for VAT on the
value of any goods on hand at the time of de-registration. If the
goods are goods for re-sale, the credit in the Case I computation,
whether on their subsequent sale or on stock in trade, should be
the figure exclusive of VAT in the normal way. If the assets are
capital assets, the appropriate VAT should be treated as capital
expenditure incurred on the asset at the time the registration is
cancelled but in practice where the amount is not substantial you
may allow it as a Case I deduction if the trader prefers.
