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:
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.
A trader may claim the input VAT on expenses before registering for VAT, where:
The input VAT can be recovered on the trader’s first VAT return.
When a trader should have registered for VAT but failed to do so, three things happen:
The penalty is based on the behaviour of the taxpayer and can be summarised in the table below: