VAT deregister question

A friend of mine has been VAT registered for the last couple of years and has earned over the €37,500 treshold, however for 2010 and probably 2011 he won't earn over €37,500. Can someone tell me if he can still hold onto his VAT number or does he have to de-register? Are there any implications to de-registering or not de-registering?

Thanks.

Once he originally registered by law, i.e. because he was trading or expected to trade over the threshold, then if turnover falls under the threshold he may, if he wishes decide to deregister. However he does not have to do so. He may remain registered. The decision on whether this makes sense or not largely rests on his customer and costs base.

If his customers are largely VAT registered then VAT is no additional cost to them and he will be equally competitive remaining registered. He also then can still claim VAT on his costs.

If his customers are largely not VAT registered, e.g. private individuals then he is currently passing on VAT to them that they cannot claim. He may be able to be more competitive by not being registered in that situation. Of course then he can not claim VAT on his costs.

If he has an accountant then I suggest that he run this by them as there may be other issues relevant to his circumstances.

Thanks for that.

His customers are VAT registered. From what you have said above does this mean that he will no longer charge them VAT on his invoices but can still claim VAT on his costs?

Weetabix said:

Thanks for that.

His customers are VAT registered. From what you have said above does this mean that he will no longer charge them VAT on his invoices but can still claim VAT on his costs?

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No. If he remains registered then he will still charge them VAT. He will still reclaim VAT on his costs. If he decides to de-register then he will not charge them VAT but will no longer be entitled to claim VAT on his costs. If his customers are VAT registered then he may find it most beneficial to remain VAT registered.

Excuse my ignorance on this but if he is still charging VAT then I am assuming he will still pay the revenue VAT (less VAT on his costs) every 2 months. This means there is no difference to when he was over the €37,500 limit and he just carries on as normal. Why would all self employeed people not register for VAT and claim it back on their costs so irrespective of the €37,500 limit so long as there customers are VAT registered?

Weetabix said:

Excuse my ignorance on this but if he is still charging VAT then I am assuming he will still pay the revenue VAT (less VAT on his costs) every 2 months. This means there is no difference to when he was over the €37,500 limit and he just carries on as normal. Why would all self employeed people not register for VAT and claim it back on their costs so irrespective of the €37,500 limit so long as there customers are VAT registered?

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Yes that is correct, he will charge VAT and claim credit for his VAT on costs while he remains registered whether over or under the threshold.

As to why everyone would not do so...that depends on the business type. Some businesses have different VAT implications, some may have little VAT on costs and might find the administration of the system not worth the hassle. It's up to the individual to see if it works for them. Also, one has to be careful in that if one registers voluntarily while under the threshold and gets back more VAT than is paid ( as can happen ) and then seeks to deregister , the excess VAT claimed must be repaid to Revenue.

Understood now...thanks very much!

Graham_07 said:

Yes that is correct, he will charge VAT and claim credit for his VAT on costs while he remains registered whether over or under the threshold.

As to why everyone would not do so...that depends on the business type. Some businesses have different VAT implications, some may have little VAT on costs and might find the administration of the system not worth the hassle. It's up to the individual to see if it works for them. Also, one has to be careful in that if one registers voluntarily while under the threshold and gets back more VAT than is paid ( as can happen ) and then seeks to deregister , the excess VAT claimed must be repaid to Revenue.

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hi- not sure what box on vat reg form should tick.Friend is setting up sole trader IT business. The business will fall under: (( (a) website supply, web hosting, distance maintenance of programmes and equipment b) supply of software and updating of it c) supply of images, text and information, and making databases available))-as far as i know this is called Fourth Schedule Services.
If sole trader have not opted to register voluntarily i.e. sole trader opted other box (on VAT Registration Form) (i) ''Are you registering because your turnover is likely to exceed the limits prescribed by law for registration'' I assume this is the case where future customers that are indeed vat registered, do require from my friend /sole trader to be vat registered, -surely to do business with.
Or the second scenario , ticking the box (ii) ''because you are in receipt of Fourth Schedule Services''. So, now assuming that business will NOT succeed and there will be decrease in the sale-as a result...sole trader decides to De-register for vat as vat registered clients decreased too (as an example).
Ticking one of these two boxes, Would my friend sole trader still incur vat clawback? even if reasonable genuine explanation to revenue will be given?

In other words,ticking what box on the vat registration form,would have what implications? Please advise