Pitfalls of VAT registration rules
VAT is a deceptively complicated tax, not least when dealing with issues relating to registration. Some of the points that can arise and catch people out are:
- The need to keep a running 12 month total of turnover so that you can identify when the figure exceeds the registration threshold (£85,000 until at least 31 March 2024). You then have a month to register from the end of the month when the threshold is exceeded.
- If you expect to turn over £85,000 in the next 30 days you must register immediately.
- The registration applies to the person or entity and not to the particular business. So if a sole trader has (say) buy to let property income as well, that needs to be taken into account for VAT purposes, This is not a direct problem, because residential letting is exempt from VAT, but it could lead to problems with partial exemption.
- The flipside of this is that it is possible to plan to have different businesses owned by different combinations of people (say within a family, or using companies) to keep them separate for VAT purposes and make sure they each have their own registration threshold.
- Such arrangements must be genuine (separate books and records, separate bank accounts etc), otherwise HMRC can issue a disaggregation ruling to combine the businesses for VAT purposes (but not with retrospective effect).
- The deregistration threshold is traditionally £2,000 less than the registration threshold, and if there is a genuine expectation that the next 12 months’ turnover will be below £83,000 then deregistration is possible.
- Care needs to be taken when de-registering, as the value of stock and other assets on hand can trigger a VAT liability at that point.
If you have any issues regarding VAT registration or de-registration, or want to discuss planning the VAT structure of your business, we would be happy to help.
