Frequently asked questions

What is Value Added Tax?

Value Added Tax (VAT) is a tax you pay on most goods and services. It is 20% on most items, but less on essential items.

How is VAT worked out?

When someone charges you VAT they multiply their selling price by the VAT rate to calculate the amount of VAT to charge. They then add this to the selling price to give you the price you actually pay - this is called the ‘gross’ price.

Who collects VAT?

Collection of VAT is done by Her Majesty's Revenue and Customs (HMRC). HMRC collects both direct taxation (paid by individuals or businesses on income earned or capital gained) and indirect taxation (paid on money spent on services or goods.)

Who registers for VAT?

A company, partnership or an individual that supplies or intends to supply services over a certain turnover which is subject to VAT must be registered under the Value Added Tax Act 1994, and is known as a "trader".

What is a VAT registration number?

All VAT registered traders are issued a VAT number by HMRC. Each VAT number includes a set of information to identify the trader to whom it is issued. The VAT number should be quoted in all correspondence with HMRC.

How do I verify a VAT number?

The official receiver can verify that the insolvent has disclosed a valid VAT number via the website of the European Commission  http://ec.europa.eu/. This website will verify the validity of a UK or other European Union member state VAT number.   

What is the difference between input and output tax?

VAT included in the purchase price of goods or supplies is input tax to the purchaser. VAT charged in the sale of the goods or services is output tax to the vendor. 

What  is a VAT return?

A trader is required at pre-set intervals, to complete a return and account to HMRC for the VAT input and output tax for that period.

Who should complete the VAT returns in a bankruptcy or liquidation?

Pre insolvency

Where the insolvent has traded and a VAT return has not been submitted for a pre-insolvency period the official receiver may require the insolvent to complete a return for the last business period i.e. from the date of the last return to the date of the bankruptcy or winding-up order (see paragraph 78.77). The official receiver may complete a pre insolvency return but must not sign the return and should mark it “completed from the books and records of the company/trader”.

Where an insolvency practitioner has been appointed, the responsibility to complete VAT returns will rest with him/her.  

Post insolvency

The official receiver is responsible for completing post insolvency VAT returns when acting as liquidator/trustee until the insolvent is deregistered for VAT. Where an insolvency practitioner has been appointed, the responsibility will rest with him/her (see paragraph 78.79).    

Where an insolvency practitioner has been appointed, the responsibility to complete VAT returns will rest with him/her.  

Bankruptcy

When a bankrupt continues to trade post bankruptcy the bankrupt retains responsibility for the submission and payment of VAT returns covering the post-bankruptcy periods.

How do I complete a VAT return form?

Guidance on the completion of a VAT return form is provided in paragraph 78.80

Does a VAT registered bankrupt pay VAT on all assets?

Any sale of private assets of a registered bankrupt is not in the course of business and therefore is not subject to VAT.

What is deregistration?

Deregistration is the process by which a VAT registered business is removed from the VAT register with HMRC and the VAT registration number is cancelled (see paragraph 78.62-63).

When is deregistration not appropriate?

Deregistration will not be appropriate where there are ongoing matters and the VAT affairs of the insolvent cannot be finalised (see paragraph 78.67) 

What is VAT Bad Debt Relief?

If a customer does not pay a debt in relation to goods or services supplied and the VAT output tax has been accounted for to HMRC, it may be possible to claim relief from the VAT on these bad debts. This is known as VAT bad debt relief (see paragraph 78.22-24)