VAT, should you be registered?

Letters have gone out to businesses that HMRC believes are trading above the VAT threshold but who are not yet registered. Agents have not been sent copies, so if you have received such a letter, you will need to tell your accountant.

Registration is required if in the previous 12 months exceeds the VAT threshold, currently £85K. Exempt sales do not count towards this figure, but zero rated sales, books and kids clothes for example do, as do reduced rated sales, like house alterations.

You are required to inform HMRC within 30 days of the end of the month in which you exceeded the threshold. A penalty for late registration can be levied and is based on a percentage of the net VAT payable between when the business should have registered and when they actually did. This penalty ranges from 5 to 15% depending on the lateness.

The information that HMRC bases the assessment on will be out of date, as it is from the last return the business made and especially with Covid, turnover may well have fallen since and therefore make the predictions HMRC have made incorrect.

By reviewing rolling turnover over 12 months, businesses can check if they did indeed exceed the £85K in any 12 month period, if they did not, then they need to reply to HMRC to advise them of this, then they will not chase.

If, however, you have gone over the threshold and didn’t realise, register for VAT immediately, whether or not the deadline has been missed, and advise HMRC that this has been done. You will need to calculate the VAT due from the date registration became necessary. It is possible to reinvoice customers explaining that you have had to register, if the business is VAT registered, this should not present a problem as this will be recoverable through their own VAT return, if they are not registered, you may need to decide whether it is worth upsetting your customers to send a higher invoice to charge the VAT or whether to consider the price invoiced as the gross amount and take the hit yourself.

If you had gone over the threshold but your turnover has now dipped below the threshold and expect it to remain below, complete the registration but click on the box to request registration exemption.

It’s not all bad news, although, once registered, you have to charge VAT on your sales, you can also recover VAT on purchases and can recover VAT paid in the previous 4 years if the items bought are still held or the last 6 months for services purchased before registration.

It maybe a bitter pill to swallow and raise questions about how your non VAT registered customers will react to what they will see as a 20% increase in price but if you have breached the threshold you must register or face stiff penalties.

Quickbooks can help to calculate your VAT liability and is fully set up for MTD for VAT.

Published by Holly Mapletoft BA MAAT

Licensed accountant and bookkeeper, untangling tax and unfogging accounts for small businesses.

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