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Generating more than £85,000 a year? Business not registered for VAT? Be aware, HM Revenue & Customs (HMRC) is cracking down. It is singling out firms it believes should be registered.


Tell your advisers

Typically, when HMRC targets unregistered businesses for VAT avoidance it doesn’t inform their accountant. So, update your advisers without delay. Otherwise, they can’t help to mitigate any penalty you receive.


When to register for VAT

You must register if your taxable turnover for the previous 12 months exceeded £85,000. Or, if you think that turnover in the next 30 days will take you above this threshold.


Calculating taxable turnover

Check your status by calculating your taxable turnover. Remember, land and insurance are exempt sales. As such, they don’t count. However, you must consider zero-rated sales. Books and children’s clothing, for example. Also incorporate reduced-rated sales, such as alterations to houses. 



So, what happens if you don’t register when necessary? HMRC may charge a penalty. This is based on a percentage of the net VAT payable. Generally, it’s between 5% and 15%. Critically, it depends on the timeframe. There are two key dates to consider. The date on which your business should have registered. And the actual date of registration.


Outdated records

Don’t panic. Potentially, HMRC’s figures could be out of date. By up to 12 months, in fact. Also, bear in mind the impact of Covid-19. Many businesses won’t be earning what they expected. Consequently, HMRC’s assumptions about taxable turnover end up wide of the mark.


Turnover review

First, if HMRC targets your business, review your turnover. Check your rolling 12-month figures. Go back as far as you can. Then, you can determine if turnover currently exceeds £85,000. Or whether it has ever breached the threshold.


It’s good practice to conduct a monthly review. In particular, we recommend it if your turnover is close to the threshold.



How to register

Certain you don’t need to register? Tell HMRC promptly.


If you must register, do so without delay. Register for VAT online. In addition, confirm it in writing. Notify HMRC using the address in its letter to you. 


Clearly, if you’ve breached the threshold, VAT will be due. Tax applies to sales from the date you meet the criteria for registration onwards. However, there’s a positive, too. You can recover VAT incurred on business purchases. In fact, you can usually recover VAT paid up to four years prior on, say, equipment that you still have at the date of registration. With services the position is slightly different. Recoup VAT on services bought within six months of registration.


VAT on historic invoices

What about historic invoices? Potentially, you can still charge the VAT. It depends on the contract. If permissible, paying this VAT could impact your customers’ cashflow. Therefore, allow them extra time to pay.


Apply for exemption

In some circumstances an exemption from registration applies. Let’s say turnover exceeded the threshold during the previous 12-month period. Yet, it has since taken a dip. As a result, it’s now below the level for registration. And you expect this for the foreseeable future. What action do you need to take?


Generally, we recommend filling out the registration form. But tick the box to request exception from registration. If HMRC agrees, you won’t have to register. On the other hand, you must review your turnover regularly.


Register anyway!

Equally, you may be exempt due to numerous zero-rated sales. Especially if this caused the breach of the registration threshold. That said, it may be beneficial to register anyway. The upside is that you can claim quarterly VAT refunds.


VAT registrations backlog

HMRC admits to a backlog in processing VAT registrations. Consequently, it might target you even after registration. If this happens, point it out. Reply promptly explaining that you’re now registered.


HMRC targets unregistered businesses for VAT avoidance

If you need advice, our specialist tax team can help. Call us today on 01785 243276.

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