VAT is an area where we are seeing HMRC checks and enquiries on the rise. With this in mind, we thought it best to pull together an article on VAT registration itself. Please note that this only covers UK VAT: international elements and their implications are different (please contact us if this applies to your business).
Registration
A business can either complete voluntary registration (Irrespective of its turnover, see below) or, if its turnover is above a certain threshold, then registration is compulsory. Compulsory registration is required for turnover on taxable supplies over £90k (this threshold increased in April this year from £85k). Taxable elements (referred to as ‘supplies’ in the legislation) are any activities which are within the scope of VAT, whether that being standard rate (20%) income such as cars, an adult’s t-shirt or even an accountancy fees, reduced rate (5%) such as domestic utility costs, costs with safety restraints or children’s car seats, or zero rated such as residential water supplies, public transport and leaflets for charity.
There are also exempt supplies which includes insurance premiums, selling and lease of commercial property (this can be waived in some scenarios) and charitable fundraising. Turnover of exempt supplies is excluded from the £90k threshold.
It can be advantageous to apply for VAT registration in certain scenarios even when the threshold is not met. One such example is if a company has zero rated supplies, such as operating the local buses, then no VAT would need to be charged out on tickets, but would allow the company to reclaim the VAT on the fuel they purchase.
In reviewing a compulsory VAT registration, a business must review its taxable supplies for the previous 12 months on a rolling monthly basis. At the end of a month if the threshold is breached then the business will have 30 days from the end of the month it breached to register with HMRC, with the first day of the following month being the effective registration date. Although this is relatively rare, it’s important to be aware of it.
Example-
A sole trader assesses their income and notes that for the 12 months to 31 July 2024 they have made taxable supplies of £92k. Based on this, they must register for VAT with HMRC by 30 August 2024 and the effective registration date would be 1 September 2024.
Additionally, if it is known or anticipated that within a 30 day period a business will go over the threshold of £90k in turnover, then the business must register for VAT by the end of that 30 day period. In this case the effective registration date would also be the date that the business realised it would breach the threshold. It Is easy to get caught out by this, so please do be careful and speak to us if you are in any doubt.
Example-
During a pandemic a brand-new company signed a contract to provide PPE to the NHS. As they were only incorporated for a few weeks they had no trading activity prior to this which would be classed as taxable supplies. When the contract was signed at the start of April, to supply 210 million face masks for £80.85 million over the course of May and June the company would have been liable to register for VAT by the start of May. In this case the effective VAT registration date would be the day the contract was signed. It doesn’t matter how big the contract is, you still need to make sure you get the registration date right!
De-registration
When there is a threshold for registration there is also often a threshold for de-registration. This threshold also increased in April this year, to £88k. To satisfy the requirement to de-register, a business must be able to prove that it expects taxable supplies to be under the £88k threshold.
It is also important to note that when a business ceases to trade it must de-register for VAT, the date for this would also be the date the business is to cease trading. However, extensions can usually be agreed with HMRC to ensure that the disposal of capital assets or appropriate recoverability can be completed.
If you do have any questions about VAT, please get in touch.
Callum McKinnon, M&S Accountancy and Taxation Ltd
