Plan ahead for VAT registration to avoid delay

by Michael Blaken

Covid and the end of the EU transition are contributing to delays in the VAT registration process, and some firms are being caught out.

Under HMRC’s own rules, applications for VAT registration, which businesses have to make if they exceed the £85,000 turnover threshold, should take no more than 30 days to deal with.

But a spike in applications resulting from changes to import VAT rules following the end of the transition period, plus delays due to Covid, has meant the process is taking much longer, in many cases up to 60 days.

There is a further aggravating factor. Government Covid grants and loans (albeit not VATable income), and going in and out of lockdown, has meant some businesses are experiencing a more erratic income, which is clouding the situation, with more peaks and troughs through the year. This makes it harder to plan and to predict when the VAT registration threshold might be reached – or even to spot when it has been exceeded.

The result is that firms not applying in time are going over the VAT threshold – which is calculated on a rolling 12 months of turnover – and experiencing a delay in receiving their number.

Trading while over the VAT threshold, but without a VAT number, is problematic, because the VAT owing still has to be paid to HMRC.

One option is for businesses, once they have a VAT number, to issue VAT only invoices to their clients, so claiming the tax retrospectively, which is not an ideal situation to be in.

This may be affective when invoicing other VAT registered businesses, which can in turn recoup the VAT in their own returns. However, consumers or non VAT registered business are unlikely to agree to pay backdated VAT. The VAT still has to be paid, so may end up coming out of the business’s profits.

Becoming VAT liable also means a business needs to pay VAT via the Making Tax Digital (MTD) system for each quarter, which itself needs to be registered for, and an MTD compatible software used.

Overcoming the hurdle of delayed VAT registration

The solution is for businesses to prepare well in advance, by careful business planning, and predicting future profits, so that the point where it will be necessary to register for VAT can be pinpointed in advance, so that when the limit has been exceed an application is made in good time.

Talk to your accountant or business adviser, who will be able to help look at trading figures and estimate when VAT liability may kick in.

HMRC has also issued its own advice on VAT registration to help avoid even more unnecessary delays. These include making sure:

• The addresses provided on the application match the business’s principal place of business.
• The trade classification matches the work that the business itself carries out.
• The signatory for the application is valid. For a corporate body, for example, it must be a director, company secretary or authorised signatory or an authorised agent.
• The dates on the application are valid. For example, the effective date of registration requested matches the circumstances that have been outlined for requesting registration elsewhere in the application.
• The bank account details provided are in the name of the taxable person.

But above all, plan. And if you’d like some advice about business planning, VAT and Making Tax Digital, contact me, Michael Blaken, or anyone in the  Optimum accountancy team based in Swindon and Cheltenham will be happy help. Please get in touch.