Some non-VAT registered businesses have recently received letters from HMRC claiming that they are trading above the VAT threshold. Any business that has received such a letter needs to act quickly. They should share the letter with their tax agent/accountant then work together to review the rolling 12-month turnover figures.
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 they have previously been close to the VAT registration threshold. This is because a business has 30 days to notify HMRC and register for VAT once its taxable turnover for the previous 12 months exceeds £85,000 or if it expects it will exceed this amount in the next 30 days.
If you’ve received a letter querying your VAT registration, this is what you need to do.
- Inform your tax agent and/or accountant
- Review your rolling 12-month turnover figures to ensure at no point they breached the £85,000 threshold. Extend as far back as possible to ensure a reporting requirement has never arisen.
- If you have not breached the threshold nor will in the future, reply to the HMRC letter and confirm this.
- If you have breached the threshold and an exemption does not apply, whether the deadline has been missed or not, immediately register for VAT online and notify HMRC via the address on the letter.
An exemption may be claimed if the business exceeded the threshold in a previous 12 month period but turnover subsequently fell and is expected to remain below the threshold into the future or if the business only exceeded the threshold due to a high number of zero-rated sales, such as on books or children’s clothing.
The business should complete the registration forms, ticking the box to request an exemption from registration. If HMRC agrees, the business will not be required to register.
Exceeded the VAT Threshold and do not have exemption – what happens next?
VAT payments are due: If you should have been VAT registered previously, then VAT will become due on any sales made since that date. Depending on the wording of the contracts, the business may be able to issue additional invoices to affected customers for VAT that should have been charged historically. Where the customer is VAT registered this is unlikely to represent a real cost to them, however they may require additional time to make the payment.
Recover historical VAT on purchases: The business can recover VAT paid in the previous four years for physical items still held at registration, or within the last six months for services purchased prior to the date of registration.
A penalty may be levied: HMRC may charge a penalty if your business missed the VAT registration deadline. These penalties are based on between 5-15% of the net VAT payable between the date it should have registered and the date it did register.
It is possible that you receive a letter based on historical projections made by HMRC yet your turnover has been negatively impacted by the recent lockdowns. This and the backlog currently being experienced by HMRC may mean that you received the letter in error. However, it’s still important to act: talk to your accountant and review your turnover. Even if HMRC are correct, we may be able to mitigate any potential penalties.
Please feel free to contact the team on 01992 444466 if you have any questions and we’ll be happy to advise you. We’re accountants for business, and we’re here to help you grow and prosper.
The information contained above is for general guidance purposes only. Whilst every effort has been made to ensure the contents are accurate, please note that each individual has different circumstances and it is essential that you seek appropriate professional advice before you act on any of the information contained herein. HB Accountants can accept no liability for any errors or omission or for any person acting on or refraining from acting on the information provided in the above
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