VAT registration - timescales and moving thresholds

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Monsoon
Monsoon Registered Posts: 4,071 Beyond epic contributor 🧙‍♂️
My client breached the VAT threshold last summer.

This is due to a separate trade being run through their company, and as of 1st July 2011, they are moving the trade to another company. I do not believe there is an artificial separation issue.

The new trade is B2C, so the price would be a VAT inclusive price, i.e. they cannot add VAT to their price. Therefore, were they to register, their turnover would immediately fall under the deregistration threshold. But then, if they deregister, their turnover would go over the registration threshold again! On these grounds, I'm going to try to argue a need not to register, despite the fact they have been 'bouncing' for 10 months or so. Does anyone have any experience of this 'bouncing' and how the VAT office deal with it? I spoke to a colleague who has seen it, who said the VAT office can't agree on how to treat it and don't understand that the act of registering and deregistering changes the thresholds leaving it in limbo.

Failing that, I know there is a concession that where a tip over the threshold is a temporary blip, registration is not necessary. I feel that 10 months is a bit more than a temporary blip and the client has only just brought it to our attention. Has anyone succeeded in arguing a long 'blip'?

It would cause the company severe hardship if they had to absorb VAT into their last 10 months sales....

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  • Primble
    Primble Registered Posts: 734 Epic contributor 🐘
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    no idea about this but thought i'd give a heads up that our accountant said the other day that VAT registration was taking up to 7 months atm!
  • Newbie
    Newbie Registered Posts: 229 Dedicated contributor 🦉
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    In short I don't know the answer to this particular question, vat notice 700 always a good place to start, I can say that in my experience the registration takes about a month in most cases, you could apply for the exemption stating your grounds and question and see what HMCE suggest, if you do end up having to register HMRC will be wanting a retrospective vat return completed pronto and penalties are a given.
  • deanshepherd
    deanshepherd Registered Posts: 1,809 Beyond epic contributor 🧙‍♂️
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    Primble wrote: »
    no idea about this but thought i'd give a heads up that our accountant said the other day that VAT registration was taking up to 7 months atm!

    Then he is doing something seriously wrong.

    The last 5 VAT applications I have sent in have all come back within 2 weeks. To be honest, we have never had it so good!

    As for the 'bouncing'.. very interesting indeed. I have never had a B2C client with sales consistently falling between thresholds, particularly if B2C sales are only one part of the business (is it really that static across the board?). From a purely legislative position, as registration is compulsory, deregistration is voluntary and any HMRC ruling is discretionary, then your client may be forced to backdate his registration and perpetually register and deregister. You can only present the facts and hope that HMRC take a sensible view.

    You could of course bury your head in the sand until the new company is set up (I didn't say that out loud did I?!)
  • Monsoon
    Monsoon Registered Posts: 4,071 Beyond epic contributor 🧙‍♂️
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    Thanks all.

    All of our recent VAT applications have gone through incredibly quickly. We register online, not on paper, and they have come back within 2 weeks or less. I think the one for my new company came back in about a week, that was in January.

    I hear that some industries can take months to get a VAT number, but I've never experienced it, it's always been rapid for us.

    As to my client, there is a new VAT amnesty so we can use that to mitigate any penalties.

    I've looked in VAT notice 700: the bit I was after is this:
    2.7 Do I have to register if I have reached the thresholds but I expect the value of my taxable supplies to reduce?

    If at the end of any month the value of your taxable supplies for the last 12 months has gone over the registration threshold, but you can provide evidence and explain why the value of your taxable supplies will not go over the deregistration threshold in the next 12 months, then you may not have to register, unless you are otherwise required to do so because of the level of your distance sales or acquisitions. This is called exception from registration.

    You must still tell our VAT Registration Service that you have reached the threshold within 30 days of the end of that month, but you will not have to fill in any forms; unless you are refused exception from registration.

    If you are granted exception from registration you do not become immune from a later liability to register for the supplies you continue to make. You should continue to monitor the value of your taxable supplies on a monthly basis to determine if a further liability arises. The granting of exception does not create a cut-off date which means you must continue to include ‘pre-exception’ turnover in your calculations. If a further liability arises you will have to apply again for exception, if appropriate.

    If your application for exception in not accepted by HMRC you will be registered for VAT from the day you were otherwise liable to be registered (see paragraph 3.3) and you will need to account for VAT from that date. Therefore any application should be submitted as early as possible with a full explanation to enable HMRC to reach a decision in good time.

    So, it's possible, but dependent on HMRC agreeing....!
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