It is important for a business to register for VAT provided that during the previous year their ‘taxable supplies’ (typically based on the turnover and not the profits) have surpassed the threshold for VAT. This is applicable to all businesses in the United Kingdom, no matter whether you’re working as a limited partnership, company, or sole trader.
The registration threshold for VAT may change on a yearly basis. The threshold is calculated on a rolling basis, so a business must monitor its taxable turnover for a one year period, not simply during the present tax year, or the previous financial year. If the final turnover during the previous year surpasses £85,000 (for this year), you must apply for VAT.
An overview of taxable supplies
These are any services and goods that may be subject to VAT, which includes the items which have zero ratings. The final taxable supplies are therefore the entire value of all the things that you sell which are not exempt from Value Added Tax. As a number of businesses do not supply VAT-exempt services or goods, the taxable supplies usually are the same as the gross or turnover sales of a business.
According to HMRC guidelines, the final sale value for such a purpose also must comprise:
- Any items that you have loaned or hired out to consumers
- Any business-related items which are utilised for personal reasons
- Any items that you have part-exchanged, given away, or bartered in the form of gifts
- Services that you have used from foreign businesses that must be reverse-charged
- Building tasks worth £100,000 or more which a business undertook individually
You should also apply for VAT if you believe your non-exempt revenue may surpass the £85,000 mark in the upcoming month, with a one month period again subject to rolling over. You must register before the 30-day timeframe ends; however, the registration may be effective before it, when a person first expected their business to exceed the current threshold for VAT.
Distance sales, one of the most standard examples of which are sales via make orders, is applicable when a taxable individual in an EU Member country sends products to a consumer in the United Kingdom who’s neither VAT registered nor is required to be.
You should register if, during any calendar year, your distance sale price breaches the sales threshold at a level that is presently set at £70,000. If a person makes distance sales involving excise products (such as tobacco or alcohol) in the United Kingdom, then you must be VAT registered irrespective of the final value of the sales.
These are applicable if your business is unable to make taxable deliveries in the United Kingdom, however, receives products from another country in the EU.
A person must register provided that, at month-end, their overall acquisitions from additional EU statements surpasses the £85,000 threshold or acquisitions within the next month may take you above the threshold.
Non-residents having no establishment in the UK
If you are not a UK resident and do not need an establishment in the UK, or, for a corporation, are not established in the United Kingdom, then it is necessary to register for VAT the moment you start supplying any services or products to customers in the UK (or are about to do in the upcoming month). The typical thresholds do not apply and immediate registration will be mandatory.
For further details on this matter, take a look at the detailed guide available on the official HMRC site. To conclude, we would suggest that any business that wants to trade on a global scale consults with their accountant.
Provided that all the things you sell aren’t VAT exempted, you will be able to still register as a matter of personal choice, even if your company’s turnover is below the VAT threshold. Voluntary registration does have its own pros as well as cons, and the choice of whether to report depends upon the circumstances of individual businesses.
How to apply for an exception in case of VAT registration
It is very likely that your business may cross the present VAT threshold, which may result in an obligation for registration, nonetheless, there are a number of reasons to consider this only as a temporary rule. In such a scenario, you may want to consider requesting an ‘exception’. This would mean that you do not have to register for Value Added Tax. This will be something that you should actively make an application for; it isn’t adequate to stay relaxed in the beginning and argue the matter subsequently.
To make an application for this, it is necessary to write to HMRC explaining your current circumstances to them. You should be able to provide a good explanation of why you do not need to register. This may include:
- Demonstrating that crossing the VAT threshold on this occasion is a one-off event.
- Explaining why there is no likelihood that the threshold will be exceeded in the foreseeable future.
- You’ll need to provide documentary evidence to support your arguments.
HMRC then will evaluate your application and provide confirmation in writing. In the event that they decline your application, there would be no option other than to register your company for VAT.
Even if your application is accepted, you must remember that it would be a one-off case and not a long-term exclusion. If your situation changes and your business turnover surpasses the VAT threshold again, then VAT registration would be necessary (or you may need to apply for an additional exception).
Is it necessary to register on time?
Registration within a month of turnover surpassing the VAT threshold or of when you expect it will be reached in the next 30 days is necessary.
If you don’t register within this time, you will still need to pay everything that is owed from the registration date, possibly with the applicable interest rate. HMRC can also charge you a penalty for the same, depending on the total tax you owe, how many days after the deadline you applied for registration and also the particular circumstances of your case.
You might have a chance to negotiate to cancel or minimise any penalty in its entirety in the event there are major circumstances that prevented you from registering on time. However, it would be very difficult to get any sympathy in the event you’ve just waited until the quarter-end or the financial year to review your turnover. Therefore, it is important to check it each month without fail.
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