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23-08-2011

 

 

 

VAT late registration penalties
 

Businesses becoming obliged to register for VAT must notify HMRC within 30 days. Failure to do so will invite a penalty.

A business is obliged to register for VAT if the any of the following conditions are met:

If you make taxable supplies in the UK and at the end of every month if the taxable supplies made in the last 12 months or less, when added up, exceed the registration threshold (currently £73,000) you need to register for VAT. However if you expect the value of the taxable supplies in the next 12 months not to exceed the deregistration threshold (currently £71,000) then you don’t need to register.  However, you must register for VAT if, at any time, you expect the value of your taxable supplies in the next 30 day period alone to go over the registration threshold. Taxable supplies are defined to mean supplies made in the UK that are not exempt from VAT and include supplies that are zero-rated.  

If you distance sell: If you are a VAT-registered business in an EU country and sell goods (not services) or arrange for their delivery (e.g. send them by post or by courier) to a customer based in the UK or Isle of Man who isn't registered for VAT, you are distance selling. Distance selling only involves goods, not services. And it only takes place when someone registered for VAT in an EU country sells and delivers goods to someone in the UK who isn't registered - and doesn't have to be registered - for VAT. You'll need to register for UK VAT if the value of your distance sales into the UK starting 1 January goes over the distance selling threshold (currently £73,000). If you distance sell any excisable goods like alcohol and tobacco into the UK then you must register for UK VAT whatever the value involved.

If you have made relevant acquisitions in the UK from other EU countries and at the end of any month, the total value of your acquisitions of goods (not services) from all other EU states in the year starting from 1 January has gone over the registration threshold (currently £73,000) or it is reasonable to assume that the value of such acquisitions in the next 30-day period alone would be over the registration threshold you must register for VAT. Relevant acquisitions are goods (not services) brought to the UK from a VAT registered supplier in another EU country. Such acquisitions are generally made by an organisation or a business located in the UK that does not make or does not intend to make any taxable supplies in the UK. Also, such acquisitions are generally consumed by organisations making non-business supplies or by businesses making wholly exempt supplies.


Relevant supplies:You must register for VAT if you make any relevant supplies in the UK or at any time you have reasonable grounds to believe that you will make relevant supplies within the next 30 days. Relevant supplies are taxable supplies of goods made in the UK on which a person (or his predecessor) has recovered VAT paid on their purchase or on anything incorporated in them. The definition also includes situations where a person intends to recover VAT on such purchases. Taxable supplies for this purpose include capital assets also.

Taking over a business as a going concern: If you take over a business as a going concern from an owner who was, or was required to be, VAT registered, you must register for VAT if the total value of your taxable supplies together with the taxable supplies made by the business being taken, when added together, exceed the VAT registration threshold (currently £73,000). Taxable supplies made in the last 12 months to the date of take over only need to be considered. Registration is not required if you qualify for exemption from registration. You qualify for exemption if the taxable or relevant supplies that you make are zero-rated.

The penalty for late registration is worked out as a percentage of the VAT due (output tax less input tax) from the date the business should have registered to the date when HMRC either received a notification from the business or became fully aware that it was obliged to register. From 01 April 2010 the penalty regime has undergone significant change and the penalty for failure to notify can be as high as 100% of the net VAT due.


The rates of penalty up to 31 March 2010 were as under:

·          Registering not more than 9 months late - 5% of VAT due

·          Registering more than 9 months but not

·          more than 18 months late - 10% of VAT due

·          More than 18 months late - 15% of VAT due

·          There is a minimum penalty of £50

From 01 April 2010 the penalty regime has undergone some fundamental changes. The new penalties can now go up to 100% of the VAT due and are classified in to two broad categories.

1. Where the failure to notify HMRC was non-deliberate and if there was reasonable excuse: no penalty

2. In all other cases the penalty would be worked out as a percentage of the VAT due to the government using the following table:
 


Reason for failure to notify

Disclosure

Minimum Penalty

Maximum Penalty

 

Non-deliberate

 

Unprompted

 

0% within 12 months of tax being due, otherwise 10%

30%

 

Prompted

 

10% within 12 months of tax being due, otherwise 20%

30%

 

Deliberate

 

Unprompted

 

20%

70%

 

Prompted

 

35%

70%

Deliberate and concealed

 

Unprompted

 

30%

100%

 

Prompted

 

50%

100%

 

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