Many small business owners are acutely aware of the compulsory VAT registration threshold. It helps that this has been frozen at £85,000 from 1 April 2017 until at least 31 March 2022, as they don’t have to reappraise themselves of a new threshold each year.
However, some businesses will exceed the turnover threshold as they are too busy running their business to pay attention to their rolling 12-month sales figures. If a client comes to us in a panic because their turnover has slipped over the VAT registration threshold, the situation can be rescued if we act quickly.
If a business exceeds the VAT registration threshold but expects its taxable sales to be less than the deregistration threshold in the next 12 months (£83,000), it can apply to HMRC for an exception to being registered (see VAT Notice 700/1 para 3.7). You need to contact HMRC within 30 days of the turnover limit being exceeded, and HMRC must be satisfied that the spike in turnover was a genuine one-off situation which will not be repeated.
Where the turnover has exceeded the VAT threshold for a longer period and the business has failed to register on time, there is no alternative but to register for VAT and face up to the penalty for late registration. We can help our client minimise the penalty by approaching HMRC as soon as possible, and providing all the calculations of the VAT due, so the disclosure is unprompted, and the error categorised as careless and not deliberate.
Where the client’s turnover has already dropped below the VAT deregistration threshold (£83,000), we should ask HMRC to apply the “liable no longer liable” concession. This allows HMRC to treat the period of VAT registration as ending on the date the turnover goes below £83,000. This will also reduce the penalty for late registration.
Unfortunately, the description of the “liable no longer liable” concession in the HMRC VAT registration manual has been withheld “because of exemptions in the Freedom of Information Act 2000”.
Written by the Tax Advice Network