When a person dies and trading ceases, the law provides for HMRC to require a representative for that person, such as the official appointee or executors of the deceased estate, to account for any outstanding returns or tax due up to the date of death. The representative does not become personally liable; his liability is restricted to ‘the extent of the assets of the deceased or incapacitated person over which he has control’, in the same way, that it would have applied to the deceased person. The representative is required to inform HMRC within 21 days of beginning to act.
If a representative is put in place, the regulations allow HMRC to continue to treat the representative as a substitute for the deceased taxable person, as above, until the estate has been finalised. HMRC’s guidance advises that by custom, personal representatives are allowed a year from the death in which to complete administration, including the payment of all debts and taxes. This does not necessarily mean that they must complete the task within the year, but HMRC would review the situation at this point. This is because the legislation allowing the representative to act as a substitute for the deceased taxable person effectively postpones the date of death for a limited time until some other person is on the register properly. If, after the ‘executor’s year’, the estate has not been finalised, then, for the security of the revenue and for administrative convenience, HMRC will seek to register the personal representative in his own right as the taxable person carrying on the business.
Alternatively, if, at the outset, it is likely that the representative will continue to be responsible for the business for the foreseeable future, HMRC will register that person in their own right immediately. Where this happens, or when a third party takes over the business, it is possible to transfer the VAT number with a VAT 68 as a TOGC, or a new VAT number can be issued. The original VAT registration will be cancelled, and treated in the same way as any other registration cancelled based on ceasing to trade. Where the VAT number is not transferred, it is possible for HMRC to defer the date of deregistration to allow for any sale of assets and winding up costs to be included within the period of the VAT registration, while costs incurred after deregistration can be recovered via a VAT 427 post-deregistration claim.
Contact HMRC in writing as soon as possible to let them know of the change in circumstances, and give details of the executor(s)/representative(s) who will take responsibility for the continuation of the business and the completion and submission of the VAT returns.
Guidance can be found in VAT Notice 700: The VAT Guide – Section 26 and HMRC’s VAT Registration Manual VATREG42000.
The relevant legislation is contained in the VAT Act 1994, sections 46(4) and 46(5), and in the VAT Regulations 1995, regulations 9 and 30.