8. Cancellation of election

Summary

This section provides for the cancellation of VAT registrations by persons who had elected to be accountable, and (in some cases) for the payment to Revenue of clawback amounts in respect of excess repayments made over the period for which the election was in place.

Under the general cancellation of registration rule, the trader pays to Revenue any excess of VAT refunded to him or her over the tax paid for the taxable periods that the election had effect, or 3 years prior to the date of application for cancellation, whichever is the lesser.

There is a separate cancellation provision for elections in respect of the letting out of holiday accommodation. This applies to holiday homes acquired before 1 July 2008 (when the new property rules - see Chapter 2 of Part 8 and Part 11 – came into effect). It provides for the payment of a cancellation amount to Revenue, which is calculated on the basis of the amount of VAT deductible on the holiday property and the number of years for which the property is let. No cancellation amount is payable where the property is let for 10 years or more.

Details

(1) Subsection (1) covers the basic cancellation of election rule. The conditions under which such cancellation can be made are set out in Regulation 3 of the VAT Regulations 2010. The Regulation stipulates that on cancellation of an election a “clawback position” operates in respect of any net VAT repaid to the trader for either the entire period for which the election was in place or the 3 years prior to the VAT period in which cancellation is requested, whichever is the lesser. For example, a trader who elects to register and cancels the election 5 years later must repay to Revenue any net VAT repaid to him/her during the previous 3 years.

The formula for calculating the amount of VAT to be clawed back is—

where A is the amount of VAT repaid to the trader for the period the election was in place in respect of the supply of goods or services (other than the supply of holiday accommodation), B is the amount of VAT deductible in respect of intra-Community acquisitions and C is the net VAT paid by the trader in relation to the supply of those goods or services (other than the supply of holiday accommodation) in the same period.

Where the trader paid more to Revenue than he/she was refunded, there is no clawback.

(2)(a) Subsection (2) covers the special case of the cancellation of the registration of a person who elected to be an accountable person in respect of the letting of holiday accommodation. Regulation 3 of the VAT Regulations 2010 applies. Such persons must, in certain circumstances, pay a ‘cancellation amount’ to Revenue when they cancel their election to register.

(2)(b)(i) Paragraph (b)(i) provides for the calculation of an “adjustment amount” in respect of each supply of property for which tax was deductible. The cancellation amount is the sum of these adjustment amounts.

(2)(b)(ii) The formula for establishing the adjustment amount is—

where D is the amount of VAT deductible on the property used for the holiday lettings (including VAT that would have been deductible but for the transfer of business rule in section 20(2)(c)), and E is the number of full years the property was used for the holiday lettings.

(2)(c) A full year, as used in the formula, is defined as being a continuous period of 12 months.

Persons who cancel their election after short periods of time are liable to repay proportionately more VAT than those who cancel after long periods. For example, if A = 100 and the property is let for 4 years, the adjustment amount is A × 6/10 = 60. However, if A = 100 and the property is let for 9 years, the adjustment amount is A × 1/10 = 10.

No cancellation amount is payable if the length of time involved exceeds 10 years.

(2)(d) The subsection does not apply to holiday accommodation acquired or developed after 1 July 2008.

Relevant Date: Finance Act 2020