VATREG42200 - The effects of death, insolvency and incapacity on registration: general policy

Regulation 9 is in that part of the Regulations which deals with the subject of registration and regulation 30 is in the part that deals with accounting for tax. The two regulations are complementary and necessary for the implementation of the tax in the very limited and special circumstances to which they refer.

Regulations 9 and 30 work together in the following manner:

(a) When a person dies or becomes insolvent or incapacitated and trading ceases, the Commissioners may require a representative (for example, the official appointees in the case of death or insolvency) to account for any outstanding returns or tax which was due on the date of death, incapacity or insolvency under regulation 30.

(b) If, however, a person dies or becomes insolvent or incapacitated and trading continues, any outstanding returns and tax due at the date of death, incapacity or insolvency may be required under regulation 30. The Commissioners can then choose between:

• treating the person carrying on the business as a substitute for the taxable person under regulation 9, or
• registering the person who is carrying on the business in his own right. This will be the most appropriate course of action in those cases where all the indications are that the business will continue to be carried on by the same person for the foreseeable future.

Where it is practical to do so, you should register the person carrying on the business in his or her own right (whether that is by VAT68 or by deregistration and re-registration). The main reason for this is to ensure that, wherever possible, we have the person carrying on the business on the register in his or her own right and that the room for doubt about their liability for the tax is reduced.

However, although, under Regulation 9, we treat an insolvency practitioner as a taxable person for the business he has been appointed over, the registered legal entity remains the insolvent business and the insolvency practitioner is never registered for these supplies.

The insolvent business retains its VAT registration number post-insolvency. The only exception to this is insolvent subsidiary members of a VAT group where the representative member is still solvent. In that event, the representative member retains the VAT registration and the insolvent subsidiary should be removed and registered separately, if appropriate.