If your turnover is above the VAT registration threshold, currently £67,000, you must register for VAT.
You must also register for VAT if you buy a VAT registered business.
If you do not register for VAT you will still be liable for the VAT due from the time that you should have registered. You may also be penalized financially. Your penalty will depend on how much VAT is payable, and how late your registration is.
There are very few excuses that you can use to avoid these penalties.
Reminder: when you must register for VAT
- You must register for VAT if your turnover is above the VAT registration threshold which is currently £67,000.
- You must also register for VAT if you buy a VAT registered business as a going concern.
If all or most of the goods and services that you sell are zero-rated, you may apply to HM Revenue & Customs (HMRC) for an exemption from registration. HMRC may also excuse you from registering for VAT if you can show your future turnover will be below the registration threshold.
If you register for VAT late or do not register
If you do not regiter for VAT at the correct time, you will still be liable for all VAT due from the time that you should have been registered.
This means that you will have to pay HMRC for VAT on your sales from the date you should have been registered even though you have not have charged your customers VAT. You may also be penalized financially.
Late registration penalty: how much you may be charged
There is a minimum penalty, currently £50, for any late VAT registration. The total penalty you will pay is based on how much VAT is due from you, and how late you were in registering.
The later you register, the higher the penalty you will pay. HMRC will calculate how much VAT you owe from the date when you should have registered to either the date when HMRC receives your application, or the date HMRC becomes aware that you are required to be registered. A percentage will then be applied to this figure to calculate your penalty.
The percentages are based on how late you register. The current percentages are:
- 5% if you registered less than nine months late
- 10% if you registered 9 to 18 months late
- 15% if you registered more than 18 months late
Reasonable excuses for late VAT registration
You may not be penalized for registering late if you can show HMRC that you had a 'reasonable excuse'.
Based on your particular circumstances, a reasonable excuse could be:
- Compassionate circumstances, for example where you are totally responsible for running your business and you or a family member was seriously ill.
- Where you have taken over a business as a going concern and have sent VAT returns and paid tax on time under the old VAT registration.
- Where you have doubts about whether your goods or services are within the scope of VAT and you have enquired in writing to HMRC.
- Where you are genuinely unsure whether you are self-employed or employed What is not a reasonable excuse for late VAT Registration
HMRC will not accept excuses such as:
- you made a genuine mistake
- you were acting honestly and in good faith
- you cannot afford to pay the tax or the penalty
- you relied on someone else to register you for VAT
What are mitigating circumstances for late VAT registration
If you don't have a reasonable excuse, you may still be able to reduce your late registration penalty if you can show mitigating circumstances in your case. HMRC will not accept reasons such as the following for mitigating circumstances:
- you were acting in good faith
- you cannot afford to pay the tax or the penalty
- that little or no tax has been lost
What to do if you are penalized for late VAT registration
In general, if you have been penalized you should pay up.
However, if you disagree with being penalized or with the amount of your penalty, you may appeal.
