Registration and De-registration of VAT

When do I need to
register for VAT?

You need to register for VAT
when your taxable turnover exceeds the registration threshold. Your
turnover is calculated for the previous 12 months ( a number of
business wrongly believe that this is your accounting year it is the
previous 12 consecutive months irrespective of when your trading year

You also need to register
(even if you have not exceeded the VAT registration threshold if you
believe that in the next 30 days alone you will exceed the threshold
or in you take over an existing VAT registered business.

The turnover applies to all
supplies of goods or services that are subject to VAT either at
or zero rate. It does not apply to goods or services that
are exempt or outside the scope of VAT.

The Rates and Allowances are available here

If all your sales are exempt
from VAT then you cannot register for VAT.

So what is the VAT
registration threshold?

This is currently £81000 this does vary and is usually changed annually in the budget.

You can deregister if your
VAT turnover goes below the deregistration threshold currently £79000

(These thresholds are subject to change and you should check with HMRC or your professional advisor if you are in any doubt)

Voluntary registration

You can register for VAT if
you provide Vatable goods or services even if you are below the VAT
registration threshold.

You are eligible to be
registered if you carry on a business and intend to make taxable
supplies, you will need to satisfy HMRC that this is your intention.

So you may wonder why you
would want to. The main reasons for doing so would normally be:

  • To be able to reclaim the
    VAT on purchases made in connection with the business
  • To increase your business
    profile (customers might perceive your business turnover to be
    higher than it really is)

All cases are different and
various things need to be considered but my general view would be if
your supplying goods or services to mainly VAT registered customers
or your mainly supply zero rated goods then you may wish to consider
voluntary registration. If you supply mainly standard rated goods or
services to the public (or small non VAT registered business clients)
then you may choose to wait till you have to be VAT registered.

What if I don’t
register for VAT?

There are penalties for late
registration and these vary depending on how late payment is.

You can of course appeal
against a penalty but you must demonstrate that either

  • You think that you have a
    reasonable excuse for failing to register on time, or
  • consider that you have been
    penalised at too high a percentage, or
  • think that there are
    mitigating circumstances which warrant reduction of the penalty

Please note as with all tax
penalties the excuse that the client was relying on a professional
advisor, lack of knowledge or understanding about legal requirements
or could not afford to pay the tax are
reasonable excuses or mitigating circumstances.

A business is liable for the
payment of VAT in its sales from when you should have registered
whether you register or not. So for example you go over the
VAT registration limit and do not register. If HMRC discover this
even a number of years later then you are liable to repay all
the VAT plus penalties plus interest. You will not have
charged VAT to your customers but will still have to pay the VAT that
should have been charged on the sales. It may be in one year you go over the VAT threshold then subsequently your turnover
drops if you had registered then you could then deregister and his liability
to VAT would end. By not registering then he hasn’t had the
opportunity to deregister so your liabilities are simply increasing
needlessly. This is an area you should be proactively monitoring for
your business so you can ensure this is not missed. As with most tax
issues there is always exceptions and one you may encounter is that
you go over the VAT threshold but you can believes your turnover for the next 12 months will be below the deregistration
threshold and you can provide an explanation and evidence of this then
you must notify HMRC within 30 days and claim exemption from
registration if they approve the exemption then there would be no
need to register.

You have 30 days from the end
of the month that you went over the threshold to register.

The business will be
registered from the first day of the following month.

So for example you hit the registration threshold on 31st
May, you must register by 30
June and will be VAT registered from 1

From 1st
July the business will need to account for and pay VAT to HMRC.

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