In the past, HMRC has allowed insolvency practitioners to cancel the VAT registration of businesses at an early stage and account for VAT on any subsequent supplies using form VAT 833. HMRC has received legal confirmation that a deregistered business cannot issue a valid VAT invoice, which could result in VAT registered buyers of assets from insolvent businesses being denied claims for input tax. As a result, HMRC will no longer allow the early deregistration of insolvent businesses. Going forward, HMRC will maintain the VAT registration of an insolvent business until all trading has ceased and all assets are realised (although the insolvent business may still apply for deregistration if it trades below the VAT registration threshold). Therefore, insolvency practitioners are required to file VAT returns and make appropriate payment, if any, for each VAT period until the registration ceases.

HMRC has stated that it will work with insolvency practitioners to resolve difficulties which may arise from this approach, particularly in cases where trading has ceased but the insolvency practitioner is experiencing problems selling a property on which there is an option to tax.