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To register for VAT or not - that is the question

Puzzling client problem

Didn't find your answer?

I've 2 minds on this

The non VAT registered client incorporated 01/04/20. Thanks to lock down his competitors have all temporarily closed but will be opening soon  As a result his total turnover in April & May is £40000. He doesn't want to register for VAT unless he has to 

On a rolling basis the " business" had a turnover over £85000 in the last 12 months but that would include 10 months of self employment

1. Do we have to include the unincorporated business when looking at VAT registration I can't find an answer anywhere??

My gut feeling is no

2. It is highly likely that turnover will be above £85000 by the end of the year but below the Flat Rate Scheme limit but probably not until September

Question

If the answer to 1. above is NO he doesn't have to register and can wait. If YES he has to  Am I right ??

Any answers apart from MDTP??

Replies (11)

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Hallerud at Easter
By DJKL
29th May 2020 11:40

I think I read on here some time ago that where the turnover pre incorporation was below the registration threshold then incorporation reset the meter to zero, but you really need chapter and verse, with references ,to be comfortable this is actually correct.

Edit-See this article-

https://www.taxinsider.co.uk/incorporating-a-non-vat-registered-business...

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chips_at_mattersey
By Les Howard
29th May 2020 11:39

Whether the company has to include turnover from pre-incorporation trading is a debatable technical question.
My view is that it does not. Turnover is reset at incorporation as long as there is no requirement to register at that time.
Some of my esteemed colleagues conclude differently.
HMRC guidance is not conclusive either.

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Replying to leshoward:
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By tom123
01st Jun 2020 12:58

So, realistically then, small businesses can get two bites at the cherry - one for sole trade, and one for Ltd Company?

Or potentially three if they fit a partnership in the middle?

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Replying to tom123:
Hallerud at Easter
By DJKL
01st Jun 2020 13:43

Why stop there, just go back round to the first one, so Sole Trader,Limited, Sole Trader, Limited etc etc

Or instead why not go the whole hog to avoid any personal liability, Limited, new Limited, Newer Limited, Even Newer Limited etc, with these you can avoid CT as well, no accounts costs as you just do not bother with accounts,like a Butterfly the business only has a brief interlude of existence.

Thanks (1)
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By Rgab1947
01st Jun 2020 12:03

My understanding is if you exceed the threshold, or believe you will, with the next 12 months you should register. But as said HMRC is not clear. Some clients in the past waited to the last minute with no issues.

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Replying to Rgab1947:
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By Wanderer
01st Jun 2020 12:27

Rgab1947 wrote:

My understanding is if you exceed the threshold, or believe you will, with the next 12 months you should register.

You need to have a good re read. You have got the wrong end of the stick here.
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By john hextall
01st Jun 2020 17:24

Surely the new limited company is a different entity from the old sole trader? Therefore the VAT liability should start at zero with the new company.

Thanks (1)
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By fawltybasil2575
02nd Jun 2020 12:40

@ bernardmichael (OP).

Your starting point is here:-

www.gov.uk/hmrc-internal-manuals/vat-single-entity-and-disaggregation-ma...

Specifically, it is the "temporal disaggregation" aspect (more specifically whether HMRC seek to apply it) which is important: but see my "caveat" below. You will note HMRC's mischievously having removed helpful (to businesses) information from their website, on the pretext of its being exempt under the Freedom of Information Act.

I am with Les (at lines 3 and 4 of his post) albeit, as he says, others take a contrary view (some on the grounds that it is unethical to "dodge" a registration in this manner).

If HMRC ascertain that a business (by whatever means) has benefitted (irrespective of whether such was its intention) from changing the entity before the registration limit has been reached, then it will seek to issue a Direction, the effect being to treat the "old" and "new" entities as "one and the same business" for registration purposes: hence if the taxable turnover of that "same business" exceeds the registration limit, then it must register as at the date (which must importantly be a future date at least 30 days hence) which HMRC determine. In view of that "future date" concept, one is always "safe, for now": but again I must advise that there is an important "caveat".

So to the "caveat": one is only "safe" (from registration) if there is no possibility of HMRC's being able to demonstrate that the "old entity" and "new entity" were in reality "one business": if therefore, for example, HMRC could prove that taxable turnover of the "old entity" had been shown incorrectly in the accounting records as taxable turnover of the "new entity", and that "shifting" that turnover back to the old entity resulted in its having exceeded the registration threshold, then one could be into the realms of late registration/continuing registration, penalties etc. So, one has to ensure that everything is watertight, from the "paperwork" angle. Of course, even if the paperwork is indeed watertight, that doesn't of itself prevent HMRC from claiming that such is not so, with the resultant hassle of coping with endless correspondence.

As DJKL was indicated, ensuring that the entities, after the first, are limited companies, MAY give some (albeit limited) protection from challenge by HMRC.

In short, therefore, the answer to your original question is that (subject importantly to the above "caveat") you do NOT need to consider the taxable turnover of the unincorporated business when determining if the new company requires to register, on the strict condition that the unincorporated business was not itself either registered or required to register when the business was transferred.
Basil.

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Replying to fawltybasil2575:
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By Paul Crowley
27th Jun 2020 14:54

Superb

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Replying to Paul Crowley:
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By bernard michael
29th Jun 2020 09:03

Thanks Fawlty and everyone else for your fullsome responses. It has been decided only to use the limited company turnover. Registration will be from 1st July

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Replying to bernard michael:
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By Wanderer
29th Jun 2020 09:33

bernard michael wrote:

Registration will be from 1st July

Why? That sort of conflicts with your other statements
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