Can I Reclaim VAT If I Close My Business?

When closing a business, VAT can still be reclaimed on certain costs. Learn how to handle your final VAT return, reclaim expenses, and avoid tax pitfalls.

Introduction

When you close your business, there are several tax matters to deal with, and one of the most common questions is whether you can reclaim VAT. If your business was VAT registered, you may still be entitled to claim back VAT on certain expenses after you stop trading. However, there are also rules about repaying VAT on assets or stock you still hold.

This article explains what happens to VAT when you close your business, when you can reclaim it, and how to handle final VAT returns correctly to stay compliant with HMRC.

What Happens to VAT When You Close a Business

If your business is VAT registered, you must inform HMRC that you are ceasing to trade and de-register for VAT. You can do this online through your HMRC account or by submitting form VAT7.

When you de-register, HMRC will ask for a final VAT return covering the period from your last VAT submission up to the date your registration is cancelled. This return includes all sales and purchases made before the business officially closes.

The key points to remember are:

  • You can reclaim VAT on certain costs incurred before and after the closure date.

  • You may need to repay VAT on assets or stock you keep for personal use.

  • You must keep records for at least six years, even after de-registration.

Reclaiming VAT After Closing Your Business

You can often reclaim VAT on:

  • Business expenses incurred before you officially de-register.

  • Some costs related to winding up your business (such as accountant or solicitor fees).

  • Certain purchases made before registration if they are still used for business purposes up to closure.

You can include these VAT amounts in your final VAT return, provided they meet HMRC’s rules for reclaiming input tax.

Example

If you paid VAT on professional fees to close contracts, sell equipment, or settle debts, you can claim this as input tax on your final return.

However, you cannot reclaim VAT on:

  • Goods or services bought for personal use.

  • Purchases made after the business has completely ceased trading (unless they relate to winding up the business).

VAT on Assets You Keep

When you close your business, HMRC may require you to account for VAT on any assets or stock you retain for personal use. This applies if the total value of those assets (excluding VAT) is more than £1,000.

This process is known as a deemed supply — HMRC treats it as if you sold those items to yourself. You must include the VAT on your final return as output tax.

Common examples include:

  • Equipment such as computers, tools, or machinery.

  • Unsold stock taken for personal use.

  • Vehicles that were previously used for business purposes.

If the items are worthless, broken, or scrapped, you do not need to account for VAT on them.

Pre-Registration and Post-De-Registration VAT

Pre-Registration VAT

If you registered for VAT partway through running your business, you may be entitled to reclaim VAT on certain goods and services purchased before registration, provided they were still used in the business after you registered.

This rule can also apply when closing your business if those earlier claims were never made. You can include eligible pre-registration VAT on your final return.

Post-De-Registration VAT

Sometimes, you might receive invoices or pay expenses after your VAT registration has been cancelled, for example:

  • A late supplier invoice for work done before closure.

  • Final accountancy or legal fees.

In these cases, you can still reclaim VAT by writing to HMRC and submitting a claim within four years of the date you incurred the cost.

Your claim must include:

  • The invoice or receipt showing the VAT charged.

  • Proof that the expense related to your former business.

  • Your old VAT registration number.

Selling Business Assets Before Closure

If you sell equipment, furniture, or vehicles before closing, you must charge VAT on those sales if you are still VAT registered.

However, if you sell them after you have de-registered, you cannot charge VAT — but you also cannot reclaim VAT on any associated costs.

It may be beneficial to plan your asset sales before you officially de-register to maximise VAT recovery.

Final VAT Return

Your final VAT return should include:

  • All sales and purchases made before the closure date.

  • VAT on any assets you keep for personal use (output tax).

  • VAT you wish to reclaim on business expenses (input tax).

Make sure your figures are accurate, as HMRC may review them closely. If you overpay or underpay VAT, HMRC can adjust your account or issue a refund after reviewing your final return.

Keeping Records After De-Registration

Even after you close your business, you must keep VAT records for six years. These include:

  • Invoices and receipts.

  • VAT returns and calculations.

  • Bank statements and correspondence with HMRC.

Keeping these documents ensures you can answer any HMRC queries or support future claims.

Example Scenario

Lisa runs a small design business and decides to close it in September. She de-registers for VAT and submits her final VAT return.

She reclaims VAT on:

  • Legal fees related to ending supplier contracts.

  • Accountancy services for finalising her tax obligations.

  • Office rent and utilities up to the date of closure.

She also accounts for VAT on a laptop and printer worth £1,200 that she keeps for personal use. After submitting her final return, HMRC issues a small VAT refund based on her input tax claims.

The Role of an Accountant

An accountant can help you:

  • Complete your final VAT return accurately.

  • Identify which costs still qualify for VAT recovery.

  • Calculate VAT due on assets you keep.

  • Handle any post-de-registration claims with HMRC.

They can also ensure you do not overclaim VAT or overlook assets that should be taxed as deemed supplies.

Conclusion

You can reclaim VAT when closing your business, provided the expenses were incurred before de-registration or relate to winding down your operations. However, you may need to account for VAT on any assets you retain for personal use.

Submitting an accurate final VAT return and keeping records for six years are essential for compliance. If you are unsure which VAT costs can be reclaimed, it is best to seek professional advice. Proper planning before closing your business can help you recover as much VAT as possible while avoiding unexpected tax liabilities.