VAT Registration And Deregistration Flashcards
Who can register for VAT?
Only a business (sole trader, partnership, or company) who makes taxable supplies can register for VAT.
If a business make wholly exempt supplies, they cannot register.
Why might not registering for VAT (if you are below the limit for compulsory registration) be beneficial for a business?
- They will be cheaper than larger businesses that do charge VAT.
- This is particularly important if they sell to the end consumer who cannot claim back their input VAT.
- The downside is they cannot claim back their input VAT to the cost of their purchases will be the gross amount.
Describe compulsory registration
- A business must register for VAT when it breaches the registration threshold (currently £90,000).
- There are two tests which must be considered to see if this breach has occurred: historic test and future test.
What is the registration threshold?
£90,000
Describe the historic test
- Looks at the taxable turnover of the business for the prior 12 months.
- If at the end of any month it has exceeded the £90,000 threshold then the business must register.
- HMRC must be notified within 30 days of the end of the month in which registration threshold is exceeded.
- Business will then be registered on the 1st day of the 2nd month after the threshold was exceeded.
If the registration threshold was exceeded on 28/02/X7, when should a) HMRC be notified b) the businesses be registered?
A) Within 30 days so max 30/03/X7
B) 1st day of second month after the threshold was exceeded so 01/04/X7
Define taxable turnover
Taxable turnover is the value of standard-rated, reduced rate, and zero-rated supplies NOT exempt supplies
If a business has taxable turnover of £10625 per month starting in 1 February 20X1, calculate when the £90,000 registration limit is exceeded.
- £90,000/£10,625 - 8.47 months —> so by month 8 we are not quite there thus we will exceed it in month 9
So 31/10/X21
Describe the future test
- Future test looks at the taxable turnover in the next 30 days alone.
- If at any time the business is expected to be more than the registration limit of £90,000 in those 30 days it must register for VAT.
- Notification must occur within 30 days of the date the business has become aware that the £90,000 is breached.
- Registration will be from the beginning of the 30 day period.
If business A’s turnover will be more than £90,000 on the 16th of August, X1, by what date do they need to inform HMRC and by what date will they be registered from?
Inform HMRC: 14 September 20X1
Registered from: 16 August 20X1
Rhyme for remembering days in each month
30 days hath September, April, June, and November
All the rest have 31
Except for February alone, which has 28 days clear,
29 every leap year.
(Or knuckle trick)
Describe what happens if a business breaches the £90,000 limit but fails to notify HMRC within the 30 days of limit.
- This can result in a penalty.
- A standard penalty regime exists across a number of different taxes, including VAT and payroll taxes (given in exam).
- This penalty is based on a % of potential lost revenue (PLR) to HMRC.
- This means the VAT that HMRC potentially missed out on collecting from the unregistered business.
- Penalties will not apply if there is a reasonable excuse.
Define an unprompted disclosure
- One where there is no reason to think that HMRC have discovered or are about to discover that the business has failed to register on time.
- All other disclosures are prompted.
Define non-deliberate disclosure
The business fails to register, but this was not deliberate or concealed.
- A genuine mistake
Define deliberate but not concealed
- The business knows they should have registered within the relevant time limit but chose not to
Define deliberate and concealed
The business knew they should have registered, chose not to, and took active steps to hide the failure to register.
Why are penalties given as a range of percentages (failure to register for VAT)?
This is because HMRC have discretion to increase/decrease the penalty within that range depending on how helpful the business is to HMRC’s investigations and how much information they freely hand over to them.
In the assessment it is likely you will be given the maximum or minimum percentage that could apply in a given scenario
Describe voluntary registration
- Rather than waiting to breach the taxable turnover limit, a business may choose to register for VAT at any time. Some businesses will never reach the registration threshold but still choose to register for VAT.
What are 3 advantages of voluntarily choosing to register for VAT?
- Input VAT can be reclaimed, meaning purchases are of a lower cost for the business.
- Makes the business look more legitimate.
- Encourage better bookkeeping.
What are 3 disadvantages of voluntarily choosing to register for VAT?
- Loss of business from non-VAT registered customers, as charging output VAT increases the cost to them.
- Administrative burden of preparing VAT returns, which can be costly as staff with relevant knowledge and skill will be required.
- Potentially employing an accountant to help with the VAT returns.
Describe deregistration in a business
- There are conditions which must be met to deregister and specific rules for the completion of the final VAT return of the business.
Describe compulsory deregistration
If the business ceases to make taxable supplies, HMRC must be notified within 30 days
De-registration will be effective from date of cessation.
Describe voluntary deregistration
If the business’s taxable turnover is expected to fall below the deregistration limit in the next 12 months, then the business may apply to HMRC to deregister (£88,000).
If HMRC agrees the deregistration date will be effective from 1. Date the request is received by HMRC, 2. An agreed later date
What is the deregistration limit?
£88,000
