A business must register for VAT once its turnover reaches or goes higher than the registration threshold. The VAT threshold sometimes changes at the start of a new tax year; the current threshold is £85,000*. This means that if your turnover from the previous 12 months reaches that amount, then it’s time to register for VAT.
This 12 month period is on a constantly rolling basis. It looks back at the previous 12 months of activity, rather than looking at records from a particular accounting period or the tax year.
You must register for VAT if you believe your turnover is likely to exceed the threshold during the next 30 days. You’ll also have to register for VAT if you purchase a business as a going concern, and it’s already VAT registered.
What happens if I don’t register for VAT on time?
Failing to register for VAT with HMRC when you should have done means that you’ll face penalties. The fine is worked out based on how much VAT you owe as well as how late you were registering. The VAT that you owe from the point of registration will be added to your penalty, to being late can get expensive!
If you didn’t register on time, then there’s a good chance that you didn’t charge VAT on your taxable goods and services either. Unfortunately, HMRC will still expect you to pay your VAT bill, and therefore pay them the VAT that should have been charged at the time, even though you didn’t collect it from your customers.
As well as receiving a penalty for registering late, you could also be charged with a penalty for failing to notify HMRC. You might even be hit with a civil evasion penalty in some cases. Ouch.
What is the penalty?
The penalties for failing to register for VAT on time vary, depending on how late you were. There is a minimum penalty of £50.
How late was your VAT registration?
Nine months or under
5% of what you owe, on top of what should have been paid
Between nine and 18 months late
10% of what you owe, on top of what should have been paid
Over 18 months
15% of what you owe, on top of what should have been paid
If you incur a penalty for late registration, HMRC will notify you in writing, though it will include instructions on how to appeal.
What if I have a reasonable excuse?
HMRC will consider an appeal if you believe that you have a ‘reasonable excuse’ for not registering for VAT on time. Although no legal definition exists of ‘reasonable excuse’, there are circumstances which may be accepted by HMRC.
For instance, if an individual is solely responsible for a business, and they or a family member is seriously ill at the time when notification should have occurred. If there is documentary evidence to prove that there has been an enquiry concerning the liability of supplies, this may also be considered.
All cases are looked at by HMRC on an individual basis. Once HMRC issue a penalty, you have 30 days, starting from the date on the letter, to appeal the decision.
Contact HMRC straight away if you can’t pay your VAT bill on time. Even if you can’t pay the bill, you should still submit the VAT return to avoid additional penalties. Different types of VAT schemes might have different rules, so check the requirements for your scheme.