VAT late registration/exemption

eddy2309

My client has just given me his 2014/15 accounts to complete. I have discovered that his turnover has exceeded the threshold and did so in approximately November 2014 (accounting period is 06/04/14-05/04/15). Query that I have, is that he is a window fitter to the trade (CIS) and also private. I have noticed on the most of his invoices, that the majority of the invoice is for materials - £4,500 less materials £4,200 = £300 less £60 tax (on his contract invoices). Can we exclude the materials, if he charges customer at the cost he paid for it? and what is the best way to deal with the fact he did not notify HMRC in November 2014 that he would be exceeding the threshold?

I have researched this, but am still slightly confused on whether this is permissible and also on the dates etc.

Any advice greatly appreciated

eddy2309

...........Also, he does not expect his turnover to exceed this years threshold, as he had bigger contracts last year

Jawz

Hi eddy2309, My question to you is: Did your client charged his customers at cost or cost plus margins? You may have a point if your client is merely passing his cost to his customer but, I suspect as a business, your client would've add at least a small margin rather cost price. In which case the figures should be treated as sales and therefore should register for VAT and pay the VAT due.

He could then de-register for VAT once his turnover goes below the threshold.

eddy2309

Hi Jawz...only just signed in again and thank you for your post. I have written to HMRC appealing. He said that he made no profit, but rounded it up at times! Anyway at the mercy of HMRC now and feel, as you said, that he will have to register and then de-register! thanks for your help

jamesm96

eddy2309 said:

My client has just given me his 2014/15 accounts to complete. I have discovered that his turnover has exceeded the threshold and did so in approximately November 2014 (accounting period is 06/04/14-05/04/15). Query that I have, is that he is a window fitter to the trade (CIS) and also private. I have noticed on the most of his invoices, that the majority of the invoice is for materials - £4,500 less materials £4,200 = £300 less £60 tax (on his contract invoices). Can we exclude the materials, if he charges customer at the cost he paid for it? and what is the best way to deal with the fact he did not notify HMRC in November 2014 that he would be exceeding the threshold?

I have researched this, but am still slightly confused on whether this is permissible and also on the dates etc.

Any advice greatly appreciated

Hi Eddy,

The strict letter of the law is that the materials need to be included - whether there's a margin on top of them or not the fact remains that he did sell those materials, and HMRC's guidance at https://www.gov.uk/vat-registration/calculate-turnover is clear that their definition of turnover includes "everything you sell that isn’t exempt from VAT".

You can get an exemption from registration if you can demonstrate that, when you exceed the threshold, you have a reason to believe that your future 12 months turnover won't exceed the de-registration threshold, but really that's supposed to be done when you exceed (i.e. November 2014) rather than retrospectively. That said, with the benefit of hindsight, where you can now prove emphatically what the turnover has been since November 2014, and you might just find that you can still build a case to argue that the client should be exempted. Depending on who deals with your request you might just get lucky, but you might equally have a battle.

Mitigating factor - where your client has been contracting through the CIS scheme (which I think is your point above re. tax deductions on contract invoices), you'd assume that his contractor was VAT registered because they generally are. Therefore if HMRC insist on retrospective VAT registration, your client should be able to agree to re-invoice the contractor to include VAT, and the contractor should be happy to pay up the additional VAT as they'll be able to reclaim it on their own VAT return, but there's no legal obligation on the contractor so it'd need to be agreed between your client and the contractor.