De-registration of VAT numbers unlawful at times
De-registration of VAT Numbers Unlawful at Times
HMRC frequently de-registers businesses from VAT, often causing significant disruption to trading operations. There are two primary grounds on which HMRC relies when cancelling a VAT registration: first, that the company no longer generates taxable supplies, and second, that the registration was obtained solely for the purposes of fraud.
However, there are important limitations on HMRC’s power to de-register. On the first ground, HMRC cannot de-register a business unless the company has no intention of trading. A temporary cessation of trade, where the company has genuine plans to resume operations, means that de-registration would be unlawful. Businesses go through quiet periods for many legitimate reasons, and a gap in trading activity does not automatically justify the cancellation of a VAT number.
On the second ground, even where fraud is suspected, HMRC must prove that the entire purpose of the registration involved fraud. This is a high threshold. If any legitimate transactions exist alongside those that are alleged to be fraudulent, de-registration cannot proceed on this basis. A company that has conducted some genuine commercial activity cannot have its registration stripped away simply because HMRC suspects that some of its transactions were connected to fraud.
Businesses that have had their VAT registration cancelled should carefully consider whether HMRC has acted lawfully and whether there are grounds for appeal.
Frequently asked questions
Can HMRC cancel my VAT registration if my business has temporarily stopped trading?
Not lawfully on that basis alone. HMRC cannot de-register a business on the ground that it no longer generates taxable supplies unless the company has no intention of trading. Where there is a temporary cessation and genuine plans to resume operations, de-registration would be unlawful. A gap in trading activity does not automatically justify cancelling a VAT number.
Can HMRC de-register a company for VAT fraud?
Only where HMRC proves that the entire purpose of the registration involved fraud, which is a high threshold. If any legitimate transactions exist alongside those alleged to be fraudulent, de-registration cannot proceed on this basis. A company with some genuine commercial activity cannot lose its registration simply because HMRC suspects some of its transactions were connected to fraud.
What should I do if HMRC has cancelled my VAT registration?
Businesses that have had their VAT registration cancelled should carefully consider whether HMRC has acted lawfully and whether there are grounds for appeal. HMRC's power to de-register is limited both where it relies on the absence of taxable supplies and where it alleges the registration was obtained for the purposes of fraud.
