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HMRC has warned traders who ignore or miss the VAT registration requirement that they could face financial penalties based on a percentage of the VAT owed to HMRC. This can be as much as 100%, depending on the severity of the failure to register on time.

Traders are required to register for VAT when their historic sales for the previous 12 months exceeds £85,000 and must notify HMRC within 30 days of the end of the month in which the VAT threshold was exceeded. The business will then be VAT-registered from the first day of the second month.

For example, if a business surpassed the £85,000 VAT threshold during December, it must notify HMRC by 30th January and be VAT-registered from 1st February.

A requirement to register can also arise where a business forecasts that sales will exceed £85,000 in the next 30 days alone.

It’s important to note that HMRC has distributed these reminders to businesses directly, rather than their tax agents or accountants. Therefore, business owners are encouraged to share these communications with their accountant as quickly as possible, giving them ample opportunity to mitigate financial penalties if a business’ VAT registration deadline has elapsed.

Is any income 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.  

We can even prepare your VAT returns using your own bookkeeping records or entrust us to handle your books as well as your VAT returns. Either way, we’ll always do our best to ensure that you claim as much VAT as possible; especially on contentious items like mixed-use expenditure and motor running costs.

For a free initial consultation on your business’ VAT status, call our friendly and experienced team today on 0800 0523 555 or begin the conversation using our online enquiry form.

Last updated: 31st March 2021

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