A business must register for VAT once its taxable turnover reaches or goes higher than the VAT registration threshold of £90,000 in a 12-month period, but there are penalties if you don’t register when you’re supposed to. In this article we explain what to expect if you don’t register for VAT on time.
When should I register for VAT?
You must register for VAT if:
- You get to the end of a month and your taxable turnover is more than the £90,000 registration threshold in the previous 12-month period
- Your turnover is likely to exceed the threshold during the next 30 days
- 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.
How much is a late registration VAT penalty?
The fine is worked out based on how late you were registering. HMRC will also expect you to pay any VAT you should have charged on taxable sales during that period, even though you didn’t collect it from your customers.
You could also be charged with a penalty for failing to notify HMRC on top of that, or even hit with a civil evasion penalty in some cases. Ouch.
VAT penalty rates for overdue registration
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? | The penalty |
| 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 |
How will I know I have a penalty for late registration?
HMRC will notify you of any penalties in writing, and include guidelines for appealing the decision.
What if I have a reasonable excuse?
HMRC will consider an appeal if you believe 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 when registration should have occurred, then this might 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.
Submitting your VAT return
As well as late registration penalties, there are charges for VAT-registered businesses who are late submitting their VAT return.
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.
Learn more about our online accounting services for businesses. Call 020 3355 4047 or get an instant online quote.
Want to learn more?
Subscribe to our newsletter to get accounting tips like this right to your inbox
