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Get an exception VAT registration

Client exceeded threshold and then ceased trading

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Hi all

I think this may be a shot in the dark, but wanted to get others opinions.

I have a client that traded for a 12 month period and have now ceased trading.

In mid-month 10 they exceeded the VAT threshold and after 12 months their VATable turnover was £132k

They are now back to an employed position.

My question is under these circumstances is it even worth writing to HMRC to ask for an exception to VAT registration on the basis of this being a temporary instance, or are they likely to just register the business for VAT for the 2 month period in question?

Anyone elses experience of a similar situation would be much appreciated.

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By Paul Crowley
05th Sep 2020 16:29

Limited company or person trading?

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By SXGuy
05th Sep 2020 19:04

The very second you submit your clients self assessment and the turnover is above 85k with no record of vat registration, you or your client will receive a letter/call from hmrc regarding the above. And you will more than likely need to establish with hmrc which month they breached the threshold and when vat was due.
If you want to avoid that, its prob best you seek exemption. Others may have a different view. But I'd personally want to avoid the enquiry.

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By armstrongbell
05th Sep 2020 22:23

To qualify for the exemption they had to know at the time they went over the registration limit that they would fall back under the de-registration limit within 12 months. So it depends at what point they decided to go back into employment and cease trading.

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By New To Accountancy
05th Sep 2020 23:50

I've recently had this and although the exemption was refused, HMRC gave a LNLL (liable no longer liable) and asked for 9 months of VAT returns. With hindsight I'd have sought exemption beforehand to avoid enquiry but client did not keep an eye on his sales and was a 31st Jan last minute return client.

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RLI
By lionofludesch
06th Sep 2020 19:26

Crossed the Rubicon mid month 10?

Register from the start of month 12 - there's only one month's trading to deal with.

How much is at stake ?

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By cbp99
07th Sep 2020 12:56

They would have been required to notify by end month 11, with registration effective from day 1 month 12.
If they ceased trading at the end of month 12, it should be easy to demonstrate turnover in the 12 months starting month 12 would be less than the degistration threshold £83k.
Hardly worth risking future penalties for not notifying.
Btw it's "exception", as OP said, not "exemption".

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Replying to cbp99:
RLI
By lionofludesch
07th Sep 2020 13:07

I agree that I wouldn't do nothing here.

From a practical point of view, the op is silent on the numbers and the type of business. Crucially, can the output tax be recovered belatedly from the customer?

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By fawltybasil2575
07th Sep 2020 13:44

@ Anonymous (OP).

Whilst unlikely to affect the requirement to notify HMRC, I am intrigued to know the circumstances under which the taxable turnover, having only exceeded the registration threshold in the middle of month 10, then “rocketed” to 132K in the 12 months (probably implying taxable turnover of nearly 47K in the last 10/11 weeks).

Perhaps you would satisfy my curiosity - one would not normally expect a business to cease trading immediately after it had accomplished such a large increase in turnover in comparison with the (in this case) opening approx. 41/42 weeks.

It appears ALMOST certain that, as at the last day of period 11, it was intended to close the business one month later, but please confirm such to be the case – it might, albeit seemingly very unlikely, be that, at the end of period 11, it was intended to continue trading (especially in the light of the substantially increased turnover in the last 10/11 weeks) but that circumstances then arose in (say) the last week of period 12 (perhaps the offer of a lucrative employment) which rendered it advisable to almost immediately close the business (at then end of that month).

To reaffirm, the critical issue is whether, as at the end of period 11, it was intended to cease trading at the end of period 12: if so, then one must contact HMRC to (in apologising for not notifying them at the end of period 11) request confirmation that exception will apply (it is NOT correct to simply take the view that one intended to cease trading, and that it was unnecessary to contact HMRC – they have to be specifically notified).

I am assuming of course that the business ITSELF ceased at the end of month 12, not that it was transferred to another person (if it had been transferred, then an application for exception would be rightly rejected).

Under normal circumstances, and subject to clarifying the point in my previous paragraph, HMRC would accept the application for exception, but they are of course entitled to question its validity, and it is wise to explain to them the detailed circumstances.

In the hopefully unlikely event that HMRC do not immediately accept the exception application, then one may have to look into the VAT which might be payable on taxable turnover for the last month – conceivably, of course (we do not know as yet the nature of the business) the VAT payable could be minimal, or even possibly produce a VAT repayment (this being dependent largely upon the profile of the customer base in terms of whether customers could recover Input Tax on “VAT only” invoices which one might be able to issue): the potential VAT payable/repayable figure could be useful in persuading HMRC to accept the exception claim, if their initial response is to reject it, on the basis that HMRC’s priority will be to ensure that they are not financially disadvantaged by the strictly late exception application).

Basil.

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By Homeworker
14th Sep 2020 10:57

I certainly would apply for retrospective exception, having done so in very similar circumstances for a client recently and had it accepted. The key is whether your client knew at the time, or had good reason to believe, that they would not exceed the registration threshold in the 12 months following the month in which they went over it.

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