VAT Registration 25th March 2013

Posted in: VAT

Not all businesses are required to register for VAT. However if a person is in business making taxable supplies, he will be required to register if, either:

  • the value of taxable supplies made in the previous 12 months exceeds the annual registration threshold; or
  • if at any time it is reasonable to believe that the value of taxable supplies made in the next 30 days on their own, will exceed the annual registration threshold.

This applies to individuals, partnerships and companies.

The registration threshold is for 2012/13 is £77,000. The threshold changes every year with the Budget.

Taxable supplies are supplies (goods or services) taxable at the standard, lower or zero rate of VAT. It does not include exempt supplies.

The first test above is the historic test. It requires that a trader keeps a rolling 12 month tally of their supplies. If a trader has breached the VAT threshold under the historic test they must notify HMRC within 30 days from the end of the month in which the threshold was breached. The trader must then charge VAT on its supplies from the first day of the following month.

For example, Greg who has been keeping an eye on the level of his supplies discovers in early June 2012 that he breached the threshold at the end of May 2012. He has 30 days from the end of May (30 June 2012) to notify HMRC. Greg must start to charge VAT from 1 July 2012.

The second test above is the future test. At any point in time the trader must ask whether his supplies in the next 30 days alone will breach the VAT threshold. If the answer is yes, he must register within 30 days of realising his supplies will breach the threshold. Here, however, registration has immediate effect and he must charge VAT straightaway.

Pre-registration input tax

A trader may claim the input VAT on expenses before registering for VAT, where:

  • goods acquired for the business are still owned at the date of registration (maximum of 4 years prior to registration); or
  • services are supplied for the business in the six months prior to registration.

The input VAT can be recovered on the trader’s first VAT return.

Penalties for failure to notify

When a trader should have registered for VAT but failed to do so, three things happen:

  1. His registration is backdated to the date when he was liable to register.
  2. He must account for all of his supplies from that date as if they had been subject to VAT (he can claim any input VAT in this period).
  3. He will be liable for a penalty, unless he can convince HMRC he had a reasonable excuse for the delay.

The penalty is based on the behaviour of the taxpayer and can be summarised in the table below:

Behaviour Maximum Penalty Min penalty with unprompted disclosure Min penalty with unprompted disclosure Min penalty with prompted disclosure Min penalty with prompted disclosure
< 12 months >= 12 months < 12 months >= 12 months
Non-deliberate 30% 0 10% 10% 20%
Deliberate, but not concealed 70% 20% 20% 35% 35%
Deliberate and concealed 100% 30% 30% 50% 50%