VAT registration is required of every taxable person making taxable supplies beyond the threshold. There are a number reasons why a business will need to register for UK VAT. This article is about the basics of UK VAT registration.
Compulsory VAT registration:
The current VAT registration threshold is £81,000 from 1 April 2014. In arriving at the turnover, all income must be aggregated to determine the threshold set for registration. Businesses trying to escape the registration by splitting the business will be caught by the disaggregation rules, which prevents businesses from artificially separating businesses. Should artificial separation be apparent HMRC would look into financial, economic or organisational links between the businesses to establish if there was indeed an artificial separation. Businesses with turnover breaching this threshold in the past 12 months on a cumulative basis will need to apply for VAT registration. Once the VAT registration threshold has been exceeded, HMRC must be notified by the end of the following month. Registration is also compulsory if you know that within the next 30 days that you will exceed the registration threshold.
Voluntary VAT registration: Even where you are under no obligation to compulsorily register for VAT you could still register for VAT on a voluntary basis. One advantage of voluntary registration is that it allows a business to claim input tax on initial expenditure.
Intending trader registration: This is where you could apply to register before beginning to trade. HMRC need to be satisfied that a business intends to make taxable supplies and is entitled to be registered for VAT. If there are changes to the intention once the business is registered, the business must notify HMRC if its intention is no longer to make taxable supplies.
Exemption from VAT registration: An exemption is available for businesses that only make zero-rated supplies. Though not regularly used, these businesses are usually in a net VAT repayment situation. This exemption may be useful in situations where the administrative burden and cost would be greater than the actual VAT recovered.
Group Registration: Group companies under common control can apply for a group VAT registration. There are a number of advantages; intra-group transfers are ignored for VAT purposes. The group registration has to elect a representative member, who must account for the group Output tax and Input tax. This does not vindicate other group members of any liability as all members are held as jointly and severally liable. To be included within a VAT group, members must be “bodies corporate”, establishments or fixed establishments in the UK and be under “common control”.
Non-established taxable person
There has been a significant change to the VAT registration threshold applying to Non-established taxable persons (NETPs). “An NETP is any person who is not normally resident in the UK, does not have a UK establishment and, in the case of a company, is not incorporated here. ”The change is in reference to the threshold, from 1 December 2012 if you are a NETP business and do not have an establishment in the UK and make any taxable supplies in the UK it must register for VAT in the UK. This is a significant change and will catch NETP businesses that are trading below the currently VAT registration threshold and thus are not required to register for UK VAT. This brings the UK’s NETP requirement for registration in line with many of its European counterparts as many countries have a registration limit of nil, i.e. you need to register as soon as you make any taxable supplies.
Though this guide is about registering for VAT, it is important to know the two main types of deregistration, compulsory deregistration and voluntary deregistration. There are a number of circumstances that will force a trader to be compulsorily deregistered. For current voluntary deregistration the threshold is £77,000 from 1 April 2013 (previously £75,000). Please note that the VAT deregistration threshold is usually increased annually.
Taxable turnover includes standard rated, zero-rated, private use, reverse charge, self-supplies and acquisitions from other EU member states. Exempt and outside the scope supplies do not need to be included.
Another category of sales that would bring a supplier to become liable to UK VAT is ‘Distance Selling’. This is where supplies are made from another EC country directly to a non-VAT registered entity, a typical example is a mail order business. The threshold to note here is £70,000 (since 1 January 1993), distance sales to the UK exceeding this threshold will require the business to register for UK VAT, the option of earlier voluntary registration is also available.
One of the key questions businesses ask in VAT registration situations is regarding pre-registration input tax recovery.
There are separate rules for goods and services. For goods to qualify for input tax recovery they must have been purchased for the purposes of the business and not supplied onwards or consumed before the date of registration, and finally the VAT must have been incurred within three years of the date of registration.
For services for qualify, the cost must have been incurred for business purposes and the VAT must have been incurred within six months of the date of VAT registration.
In both situations the input tax recovery is subject to being supported by an appropriate VAT invoice. Also, the input VAT would be claimed through the businesses first VAT registration.
Output VAT only needs to be accounted for from the date of VAT registration. VAT invoices cannot be issued until a VAT registration number has been issued. This can present businesses that are waiting for their VAT registration number with an administrative issue. The general practice is to issue invoices ‘gross’ with the legend ‘VAT registration number applied for’. The invoice must not show a VAT amount on the invoice.
Once a VAT number is attained, invoices issued with the legend mentioned above would need to be re-issued correctly displaying the VAT amount.
Failure to notify
Failure to register your business on time or to notify HMRC of your liability will result in a penalty. The penalties regime has been reconstructed and is effective for periods commencing 1 April 2009.