A salutary tale for the new business…
Remember to check your turnover every month if you are close to the VAT registration limit…
Why?
I had a phone call yesterday from a tax adviser. They had a client who had gone over the registration limit, albeit briefly, three years ago. The client decided to take no action as they expected their turnover to fall below the registration limit during the following year.
What they overlooked is that there is a requirement to notify HM Revenue & Customs (HMRC) that they had exceeded the VAT registration limit within 30 days. Because they took no action they left themselves open to a penalty for failing to notify HMRC that they’d exceeded the VAT registration limit.
HMRC intervene
As it happens, HMRC did notice the failure to notify when they were reviewing the business’s tax returns. This is one of the downsides for the taxpayer of the merger five years ago of Customs & Excise and the Inland Revenue.
As a result of this, HMRC have compulsorily VAT registered the business, and are now seeking back tax and a penalty.
The worst thing is that this was completely avoidable, and there would have been no back tax to pay. Had the business notified HMRC in time it could also have applied for exemption from VAT registration on the basis that it expected its turnover in the next 12 months to be below the VAT registration limit.
How to avoid this happening to you
You can avoid this penalty trap by keeping track of your taxable turnover at the end of every month for the past twelve months. As soon as you see that you have exceeded the VAT registration limit you have to notify HMRC. If you expect your turnover in the following 12 months to fall below the registration limit you can apply for exemption from VAT when you notify HMRC.
If you find yourself in this position and need help, ask your accountant, bookkeeper or a VAT specialist.
If you have any questions or comments on this I’d love to hear from you – use the comments section below.
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