VAT registration – when to register

HMRC’s website sets out the registration threshold and the time limits for registering when the threshold is exceeded, but there are a couple of planning points to be aware of that are not so clearly flagged.

Reverse Charge Rules

The reverse charge rules require UK VAT registered businesses to account for purchase VAT and sales VAT in respect of the business purchase of goods and services from overseas suppliers. A recipient of an overseas supply may have to account for the output VAT but the recovery of input VAT will be dependent on the tax status of the recipient. For example if there were a business in the UK selling scented candles with an annual turnover of £65,000 and all those candles were purchased from France at a cost of say £30,000, then the ‘taxable supplies’ of that business for VAT purposes could be considered to be £95,000 i.e. over the VAT registration threshold and VAT mandatory registration required.  Late registration penalties can be onerous and so it is important not to overlook this point. It is also important to note that the place of certain supplies is dependent on special rules and advice must be sought in the case of uncertainty.

Late registration penalties

Although late registration penalties can be onerous, there are occasions when it would be in the clients interest to voluntarily enter the penalty regime.  Consider a client such as an investment adviser that makes all of its supplies to jurisdictions outside the EU and the services are such that they are all supplied where received and therefore outside the scope of VAT.  In these circumstances the client’s penalty for late registration would be the higher of £50 and a percentage of the VAT due (output VAT less input VAT).  As in these circumstances there should be no output VAT, the late registration penalty would be £50, but this might allow the client to recover input VAT of a substantially greater sum from earlier activity.  There would be a number of other considerations to consider before concluding this would not have unintended consequences, but this could in certain circumstances be a very attractive planning opportunity.

The information in this article is believed to be factually correct at the time of writing and publication, but is not intended to constitute advice.  No liability is accepted for any loss howsoever arising as a result of the contents of this article. Specific advice should be sought before entering into, or refraining from entering into any transaction.