Late registration for VAT can be costly to your business.

Registering for VAT is a must if your turnover reaches a certain level; it’s part of your role to ensure that your business is suitably prepared and aware of when the registration needs to be made.

The VAT registration threshold is £85,000 – meaning that once your turnover crosses this level, in a 12 month rolling period, you may have to register for VAT. This can be a big change for a business and needs serious consideration as to the effects it can have.

A failure to comply with the HMRC rules to register on time can lead to penalties which soon tally up and leave you considerably out of pocket.

The penalty is worked out as a percentage of the VAT due, from the date when you should have registered to the date that HMRC either receive your notification or become fully aware that you were required to be registered. The rate of penalty depends on how late you were in registering:

If you registered: Then the penalty rate will be:
not more than 9 months late 5%
more than 9 months but not more than 18 months late 10%
more than 18 months late 15%

There will always be a minimum penalty of £50.

If you feel that your business could be approaching the VAT turnover threshold then get in touch so that we can help. 0116 2423400

Brook Lucas, Accounts & Tax

When Do I Have To Register for VAT?

If you are aware of an increase in turnover, or are unsure about whether you should be VAT registered or not, the following points should help:                                                      

  • If your turnover exceeds the registration threshold of £85,000 over a rolling 12 month period then you will need to register for VAT; you will then need to calculate at what point your turnover broke this threshold.
  • Once you know when you exceeded the registration threshold, you need to register by the end of the following month. For example, if the threshold was breached on 31 August, you have to register by 30 September and will be registered from 1 October.
  • If you expect you will breach the registration threshold in a single 30 day period, you must register for VAT immediately.
  • If you are late registering for VAT, then you must pay what you owe from the point at which you should have registered; as well as interest there may be penalties which depend on what you owe and how late your registration is.
  • It is possible to get an exception from registering if your turnover goes over the threshold temporarily. To do this you need to write to HMRC with evidence as to why you believe your net turnover won’t go over £83,000 (de-registration threshold) in the next 12 months. HMRC will then respond confirming whether an exception has been granted or not – this is not always guaranteed – and if denied, they will register you for VAT.
  • You can also register at any point voluntarily – you must pay HMRC any VAT you owe from the date that you become registered.

If you are unsure, there is a helpful link online (www.gov.uk/vat-registration/overview) which explains in further detail the steps you should take when registering for VAT.

If you have any queries or concerns with regards to any aspect of VAT, feel free to give our office a ring on 0116 242 3400 and we will be happy to discuss this with you. 

Jake Dempsey, Accounts & Tax

When Do I Have To Register for VAT?

If you are aware of an increase in turnover, or are unsure about whether you should be VAT registered or not, the following points should help:                                                   

  • If your turnover exceeds the registration threshold of £85,000 over a rolling 12 month period then you will need to register for VAT; you will then need to calculate at what point your turnover broke this threshold.
  • Once you know when you exceeded the registration threshold, you need to register by the end of the following month. For example, if the threshold was breached on 31 August, you have to register by 30 September and will be registered from 1 October.
  • If you expect you will breach the registration threshold in a single 30 day period, you must register for VAT immediately.
  • If you are late registering for VAT, then you must pay what you owe from the point at which you should have registered; as well as interest there may be penalties which depend on what you owe and how late your registration is.
  • It is possible to get an exception from registering if your turnover goes over the threshold temporarily. To do this you need to write to HMRC with evidence as to why you believe your net turnover won’t go over £83,000 (de-registration threshold) in the next 12 months. HMRC will then respond confirming whether an exception has been granted or not – this is not always guaranteed – and if denied, they will register you for VAT.
  • You can also register at any point voluntarily – you must pay HMRC any VAT you owe from the date that you become registered.

If you are unsure, there is a helpful link online (www.gov.uk/vat-registration/overview) which explains in further detail the steps you should take when registering for VAT.

If you have any queries or concerns with regards to any aspect of VAT, feel free to give our office a ring on 0116 242 3400 and we will be happy to discuss this with you.

Jake Dempsey 

Accounts & Tax 

When do I need to register for VAT?

You must register for VAT when your VAT taxable turnover exceeds the ‘VAT registration threshold’ of £83,000.

This is calculated on a rolling 12-month basis and is not solely based on your year-end accounts turnover … so please be aware of this!

What happens if I don’t register in time?

If you forget to register for VAT when you should, and register late, you must trace back and pay the VAT you owe from the date you should have registered.

If you sell to the general public, and not to other VAT registered businesses, this could cost you a lot of money, as you will not be able to go back and charge your customers the VAT!

You may also be liable for a late registration penalty.

How much time do I get to register, once I need to?

You must register within 30 days of your business turnover exceeding the threshold. You can do this online on HMRC’s website.

By doing this you will create a VAT online account – you need this to submit your VAT returns online to HMRC.

You should receive a VAT registration certificate within 14 working days.

If you know you are close to the threshold, and think you might have to register for VAT soon, then contact us and we will be happy to help you calculate if and when you need to register.

But what if it was a one off?

If you only exceeded the VAT registration threshold temporarily then you can apply for a registration ‘exception’.

You must write to HMRC with evidence showing why you believe your VAT taxable turnover will not go over the de-registration threshold of £81,000 in the next 12 months.

HMRC will consider your exception and write confirming if they will allow it. If not, they will register you for VAT.

If you would like to discuss any of this further then please get in touch.

Tom Luckett, Accounts & Tax Tom Luckett.JPG

Voluntary VAT Registration

It is not compulsory to register for VAT until your annual turnover/sales reach £83,000.

However, any business can register for VAT at any time.

So why would anyone want to register for VAT and charge their customers an extra 20%?

Do you sell to the general public?

If so, registering for VAT is not for you!

The general public cannot reclaim the VAT you charge, so your prices will effectively increase by 20%.

You should only register for VAT when you exceed the £83,000 threshold.

Do you sell mainly to VAT Registered Businesses?

If all (or most) of your customers are VAT registered businesses, then it is ok to charge them an extra 20%.  They will simply reclaim this VAT on their own VAT Returns, so they are not out of pocket.

It is probably a good idea for you to register for VAT and earn yourself some EXTRA CASH!!!

How??

Option 1 – Reclaim the VAT on your expenses

By registering for VAT, you must pay HMRC the VAT charged to your customers, less the VAT that you incur on your expenses.

Therefore, VAT can now be reclaimed all business expenses, where VAT has been charged, including:

  • Vans
  • Computers
  • Materials
  • Phone bills
  • Accountancy
  • Etc etc.

Option 2 – Join the Flat Rate Scheme (FRS)

Many businesses can make further profits from the VAT man.

On the FRS, you pay VAT to HMRC as a set percentage of your ‘GROSS’ sales, depending upon your trade sector.  For example, the FRS for a courier is 10%.  You continue to charge VAT at 20% to your customers, whilst paying only 10% to HMRC.

         
  Example: £  
    Yearly turnover (NET) 60,000  
    VAT Charged to Customers (20%) 12,000  
    Cash received into the bank 72,000  
    VAT payable to HMRC (72000 x 10%) (7,200)  
    Income for the year 64,800  
         

As you can see from the above example, by taking the time to submit only four VAT returns each year, you have increased your annual income from £60,000 to £64,800, an additional £4,800.  On the downside, you cannot reclaim VAT as in option 1, but if your purchases and expenses are low, this could be well worth doing.

Note: You also get a 1% discount on the FRS rate for the first year of your registration (an extra £720 in the above example).

TorrWaterfield can assist you with VAT registration, advise on the choice of scheme and help with completion and submission of your VAT Returns.

For further advice, or to discuss whether VAT Registration is for you, please give myself or your usual contact at TorrWaterfield a call on 0116 242 3400.

Stuart Caney, VAT Manager Stuart Caney April 2012.JPG

VAT and Prompt payments discounts

Businesses which currently offer prompt payment discounts (PPD) to their customer need to be aware that there are some changes ahead to the rules.

Currently under the UK law VAT is payable on the net amount after deducting the discount, whether or not the customer takes advantage of the PPD and pays promptly.

For Example if you sell some goods for £1000 plus VAT and offer 5% discount if the customer pays within 10 days then VAT is charged at 20% on £950 being £190, rather than 20% of £1,000 which is £200. Even if the customer takes 30 days to pay and therefore does not qualify for the PPD, the amount due will be £1,190.00.

This rule regarding PPD is in the process of being changed and from 1 April 2015 VAT will be due on the amount the customer actually pays. So using the above example if the customer fails to take advantage of the PPD he would need to pay the full £1,000 plus VAT of £200.

The buisness making the supply will have to issue a credit note to account for the PPD where this is taken up. So using the same example if the customer takes up the discount then the credit note would be for £50 plus VAT.

Apparently PPD have been widely used by suppliers of telecommunications and Broadcasting services and so the use of PPD to reduce VAT due has already been blocked in those sectors from 1 May 2014. This applies where the customer cannot recover the VAT Charged.

If your business currently offers PPD you may need to change your invoicing procedures from April 1 2015 and the government are going to consult on the implementation of the change. We will you keep informed of the details of the changes and when further detailed guidance is made available.

To read the official notes by HMRC please click here 

Should you be VAT registered ?

If your sales in the last twelve months have been over £77,000, then you will almost certainly need to be VAT registered.

Once registered then VAT must be considered every time that you make a sale.

The standard rate of 20% will apply to most sales and the default position is that you will be required to complete a VAT return every 3 months.  There are alternative ways to complete your VAT Return such as Cash Accounting where you only pay the VAT over to HMRC when you have been paid !, Annual Accounting – where you pay a fixed monthly standing order and only complete one VAT return per year, Flat Rate Scheme – where you pay a fixed % of your gross sales but do not claim any VAT back on your purchases.

As you can see there are many different options and professional advice is required to see which is best for your business and it is very important that your bookkeeping reflects the scheme that you are on.

It is important to check the details which are available at hmrc.gov.uk or contact us to talk through the different options.