Late VAT Registration: Implications and Penalties Explained

VAT written on a piece of paper in a filing envelope

Late VAT registration can have significant consequences for businesses in the UK. Not only can it lead to penalties, but it can also impact a company’s cash flow and reputation. In this blog post, we will explore the implications of late VAT registration and the steps businesses can take to avoid the pitfalls.

When Is VAT Registration Necessary?

VAT registration is mandatory for all UK-established persons who are involved in business activities and make or intend to make taxable supplies. There are two tests that determine when registration is required: the historical test and the ‘future’ test.

Under the historical test, if taxable sales exceed £85,000 in any rolling 12-month period, the business must register within the next month after exceeding the threshold. The effective date of registration will be the first day of the second month after surpassing the threshold. It is crucial to notify HMRC promptly to avoid any penalties.

The ‘future’ test comes into play when taxable sales are expected to go beyond £85,000 within the next 30 days. In this case, registration should be done at the beginning of the 30-day period. It is worth noting that earlier registration dates can be agreed upon between HMRC and the business.

Penalty for a late VAT return written on a brown piece of paper with a judge's gavel

What Happens If I Don’t Register for VAT?

Failure to register for VAT can result in penalties under the ‘failure to notify penalty regime.’ The extent of the penalty depends on the degree of culpability and can range from 0% to 100%. However, if there is a reasonable excuse for the late registration and the failure was not deliberate, HMRC may waive the penalty charges. It is crucial to notify HMRC without unreasonable delay after the reasonable excuse ends to increase the chances of avoiding penalties.

One important aspect to consider is the issuing of VAT invoices. Until a VAT number is issued, businesses cannot issue VAT invoices or show VAT as a separate line on any invoice. However, HMRC recommends that businesses increase their prices by the amount of VAT that would have been included in a proper VAT invoice during the waiting period. This can be done by indicating the words ‘including VAT’ on the invoice. Additionally, it is helpful to inform the customer that a VAT registration number is being applied for.

It is important to note that the process of obtaining a VAT registration number, whether late or not, can take a minimum of 40 days. Late registrations may take even longer as HMRC conducts additional checks and may require further information from the business. Unfortunately, there is no VAT registration helpline to follow up on the progress. Instead, businesses need to email HMRC here for any inquiries or updates.

Timely VAT registration is crucial for businesses operating in the UK. Understanding the implications and penalties associated with late registration is essential to avoid potential setbacks. By prioritizing early registration and staying proactive in compliance, businesses can ensure smooth operations and maintain a positive reputation.

If you require assistance or have any questions regarding VAT registration or related matters, feel free to reach out to KA Farr, your trusted tax and accounting partner. We are here to help you navigate the complexities of VAT and ensure compliance with HMRC regulations.