VAT: Are you trading above the VAT threshold but not registered?

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VAT: Are you trading above the VAT threshold but not registered?

HMRC has recently been writing to businesses which it believes are trading above the VAT threshold, but who are not currently VAT registered. 

If you have received such a letter, this is what to do:

Inform your accountant or contact an accountant

In a number of cases, HMRC has not sent a copy of the letter to your designated accountant. It is important to advise your accountant and copy the letter to them so that they can advise you with mitigating penalties should the registration deadline have been missed. 

What are the rules for registration?

A business is required to register for VAT once its historic taxable turnover for the previous 12 months exceeds £85,000, or if it expects its future taxable turnover in the next 30 days alone will exceed £85,000. Exempt sales, such as land or insurance, do not count towards these thresholds. However, zero-rated sales, such as books and children’s clothing, and reduced-rated sales, such as alterations to houses, do count. 

For the historic test the business is required to notify HMRC within 30 days of the month’s end when it exceeded the threshold and becomes registered from the first day of the second month. For the future test it must notify by the end of the 30 days after the future expectation arose and becomes registered from the start of the 30 day.

Late registration penalty

HMRC may charge a penalty where a business misses the VAT registration deadline. These penalties are based on a percentage of the net VAT payable between the date the business should have registered and the date it actually did register, ranging from 5% to 15% depending on how late the registration is.

What next?

Any businesses that have received such a letter should review their rolling 12-month turnover figures to ensure that at no point have they breached the £85,000 threshold. This review should extend as far back as possible to ensure that the threshold was not exceeded previously. All businesses, including those who have not received a HMRC letter, should be in the habit of reviewing their rolling turnover at the end of each month, especially where it has previously been close to the VAT registration threshold.

All accountants regularly advise their clients to review their turnover levels to ensure that VAT registration is put in place as soon as required to avoid any penalties.

How we can help?

For more information, please contact us to arrange a free consultation.

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