Vat Registration threshold question
“My client has recently finished a large one-off contract, and while this combined with his other work has taken him over the registration limit, his normal level of sales is well below. Does he have to register if he has reached the threshold but expects the value of his taxable supplies to reduce?”
A. The present threshold for compulsory registration is £85,000 and the threshold for voluntary deregistration is £83,000. As a rule, if at the end of any month, the value of his taxable supplies for the last 12 months has gone over the registration threshold, he is required to register. However, if he can satisfy HMRC that the value of his taxable supplies will not exceed the deregistration threshold in the next 12 months, then he may not have to register. If your client believes that he can satisfy HMRC that his future turnover will not exceed £83,000, he could apply for an exception from registration. A VAT1 form need not be done; the request should be made in writing to the Registration Unit setting out his turnover figures and the reasons supporting the request.
It is worth mentioning here that where a business exceeds the registration threshold on the forward look, where it is expected that it will exceed the threshold in the next 30 days alone rather than on the cumulative backward look, then the exception is not allowed.
Whether registering or applying for an exception, the normal 30-day time limit applies for notifying HMRC that he has exceeded the threshold.
Once granted the exception from registration, a person does not become immune from a liability to register in respect of the supplies they continue to make, and neither does the granting of exception from registration form a cut-off date for monitoring turnover. If the exception is granted, your client should continue to monitor the value of his taxable supplies on a monthly basis to determine if a further liability arises by exceeding the registration threshold. However, HMRC will not require him to re-apply for the exception where the liability arises because of the earlier one-off contract.
The conditions for applying this concession are that:
- The turnover in any subsequent month is less than one-twelfth of the deregistration threshold at that time, and
- The trader has no reason to believe that they will exceed the deregistration threshold in the then following 12 months.
If a further liability arises and those conditions are not met, the trader will have to either register or re-apply for the exception.