Registered VAT

HMRC targets traders who are not registered for VAT

HMRC targets traders who are not registered VAT


Registered VAT

HMRC has written to businesses, which is trading above the VAT threshold. Currently who are not currently VAT register.

HMRC have launched a campaign aim at VAT rule-breakers. As part of this campaign. They have confirmed that they will send letters and informing certain businesses. How is not VAT registered. The campaign is focusing on individuals and businesses trading above the VAT turnover threshold of £73,000. HMRC have advised that they will send in excess of 40,000 letters over the next few weeks. If they make a full disclosure, most face a low penalty rate of 10% on VAT.

They will also invite to disclose any other tax arrears. Where they have to pay a penalty on undeclared tax other than VAT. This will lower than the customary penalty of up to 100% charged. Those who fall outside the opportunity.

What are the rules?

A business is require to register for VAT. Once the historic taxable turnover for the previous 12 months exceeds £90,000. Or if it expects its future taxable turnover in the next 30 days alone will exceed £90,000. Exempt sales, such as land or insurance, do not count towards these thresholds. However, zero-rated sales, such as books and children’s clothing, and reduced-rated sales, such as alterations to houses, do count.

For the historic test, the business is require to notify HMRC within 30 days of the month’s end. When it exceeded the threshold and becomes register from the first day of the second month. For the future test, it must notify by the end of the 30 days after the future expectation arose. It’s become register from the start of the 30 days.

Late registration penalty

HMRC may charge a penalty where a business misses the VAT registration deadline. These penalties are base on a percentage of the net VAT payable between the date. The business should have registered and the date it actually did register, ranging from 5% to 15% depending on how late the registration is.

Information delay

Due to the nature of the self-assessment system. HMRC holds the information  for businesses that do not complete VAT returns. It will in many cases up to a year out of date. For self-employed traders, this will the profits up to 5th April 2024, and for companies reported profits potentially as far back as 29 February 2020.

As this is roughly the date when the Covid-19 restrictions began to have an impact on many businesses. It is entirely possible that the health of the business, including its turnover levels. It will have fallen since the last reported period end, making HMRC’s extrapolated estimates of turnover incorrect.

What to do

Any businesses that have received such a letter should review their rolling 12-month turnover figures to ensure at no point did they breach the £90,000 threshold. This review should extend as far back as possible to ensure a reporting requirement has never arisen. All businesses, including those who have not received an HMRC letter, should be in the habit of reviewing their rolling turnover at the end of each month, especially where it has previously been close to the VAT registration threshold.

Exempt from the VAT threshold

Yes, there are certain types of income that don’t count towards this threshold. These include ‘exempt’ sales, such as residential letting or insurance.

Zero-rated’ sales such as children’s clothing, and ‘Reduced-rated’ sales such as property alterations both count towards the VAT threshold.

It’s important not to be alarmed by receiving a HMRC communication regarding your business’ turnover. If you believe that VAT registration is not applicable to your business, then you should inform HMRC to avoid any follow up action. However, if you should have been registered for VAT, you must rectify this as soon as possible.

If you’re unsure whether your business needs to be VAT registered or not, we can help to clarify your position and monitor your VAT obligations on an ongoing basis.

If the review reveals no requirement to register, either current or historic, then the business should reply to the HMRC letter and confirm this. This will prevent HMRC following up with further letters unnecessarily.