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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15917
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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last 26 years, after retiring from my banking career,

Resolved Question:

For the last 26 years, after retiring from my banking career, I have been "trading" from home as a dealer in fine art. My turnover has been quite small but I had to register for VAT in 1988/9 when I had a unique year where my turnover exceeded the VAT sales limit. That apart my "business" has been more of a hobby, with modest sales from home - i have never had a gallery.
In recent years I have hardly been trading at all, with nil turnover for the last 2/3 years due to ill health, and undergoing extended spells in hospital for major heart surgery - i am now 79 years of age.. As a result I have just de=registered from VAT, after submitting Nil returns for a year or more. I am now left with approx £43,000 of stock at original cost, although the current market value is probably about half of that as I have many limited edition prints which were bought many years ago when the market was much more buoyant, particularly those of Sir ***** ***** Flint.
I have now formally ceased trading and deregistered from VAT, and received the appropriate confirmation from the VAT office. I advised them that I do not intend to sell any more of my remaining stock - I will simply retain it myself.
However the VAT office notes state that I must account for any stock if I could reclaim VAT due on these items when I bought them, which I could and did. Does this mean that I have to refund the VAT I reclaimed on this stock over the years, even though I don't intend to try to sell any of it in the future.. If so would any refund of VAT reclaimed in the past now be based on the original amounts, or the current valuation which is much lower.
Any advice you can give would be much appreciated as I have been quite unable to speak to any HMRC office about this query despite numerous lengthy attempts tp phone them. I have held on for about 15 minutes during at least 4 attempts, but simply hear a permanently repeating answer machine - quite appalling.
Many thanks for any advice you may be able to give me.
***** *****
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.

Hi.

It's correct that you have to complete a final VAT return after deregistration as you will read here under the heading "VAT after you cancel".

You use a fair market value for your stock as you can read here under the heading "How much VAT?" You only have to pay the VAT if it is over £1,000. If the link doesn't work click here and look for "VAT Deregistration - the final tax breaks - Tips & Advice".

I hope this helps but let me know if you have any further questions.

Customer: replied 2 years ago.

I have already submitted a final NIL VAT return which has been acknowledged. What I am asking is do I have to refund any of the tax previously reclaimed on the stock I still hold, even though I don't intend to sell any of it? Normally VAT would not be payable until I sell stock.

Also I don't expect to pay a further fee for further advice links having just agreed to pay you to answer this question.

Expert:  TonyTax replied 2 years ago.

I use confirmation links as appropriate. If one of those didn't work, that's why I gave you the google search link. If by clicking on the google search term I put in parantheses, you still didn't get access, I apologise. It worked for me. I use searches in my work every day. I don't expect people to sign up to websites I give them links to. That is not my intention at all. All I'm doing is backing up my answer with third party verification from reputable knowledge bases. Most just answer customers want that reassurance.

You have to account for VAT based on the notional disposal to yourself of the stock if the VAT is over £1,000. You received a VAT refund on the stock purchase price on the basis that you bought it for resale, not for private use. Therefore, when you derigister and take personal possession of the stock, you have to account for VAT as if you had sold it to yourself at the current market value. If that wasn't the case, some people would register for VAT, buy themselves an expensive item, reclaim the VAT and then deregister.

TonyTax and other Tax Specialists are ready to help you
Customer: replied 2 years ago.

Thanks - I am not sure how I can estimate current market value of the remaining stock as it comprises over 200 items by numerous artists, which were originally purchased at anything from £10 to £3,000. All I know is that many items, particularly the more expensive ones, have declined in value quite substantially as public tastes for various artists have changed over the years, especially for people such as Sir ***** ***** Flint who was my most expensive artist at the time some 20 years ago. Are HMRC likely to accept a "gut feeling" estimate of say 50% less overall than I originally paid? If not how can I calculate the value more accurately as not even a professional art dealer would be able to give an accurate estimate without actually going to auction. This is why I wanted to speak to HMRC, but sadly am unable to contact anybody. I am not trying to avoid paying any VAT which might be reasonably due, but just trying to come up with a fair assessment. Do you have any further thoughts or suggestions ? Thank you.

Expert:  TonyTax replied 2 years ago.
Unless you are prepared to pay for professional valuations, then you will have to use your gut feeling but it will leave you open to HMRC querying how you arrived at them, though it may never happen. If you have written professional valuations are evidence of recent sales of similar items, you will be in a better position to fend off HMRC queries.

I cannot see HMRC asking you what you paid for each item originally. They simply don't have the staff resources to query everything. I'd avoid consulting HMRC as you would be raising a red flag for them. Just go with your gut instinct. After all, you know more than them about fine art.
Customer: replied 2 years ago.

Many thanks.

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