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Vat Registration after period of not trading

Client exceeded the vat threshold on last invoice before ceasing trading but restarting trade

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I have a PR consultant client trading via a limited company who exceeded the vat threshold in March 2020 but stopped trading on 31st March 2020 as they had good employment oppertunity. We did not register the company for vat  and sent a letter to hmrc explaining that the company had exceeded the vat threshold but would issue no further invoices as trading had stopped. Unfortunately due to Covid the employment contract ended prematurely and client has obtained consultancy work and will start using the company again. Going back twelve months from now the company turnover is only half the vat threshold as there has been no income for 7 months. Therefore looking for advice as to whether we need to register immediately and charge vat on invoices the client issues this month due to previous obligation to register or whether the vat registration can be avoided as the past twelve months income from the date of the invoice issued this month wont exceed the vat threshold.

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By Paul Crowley
11th Nov 2020 11:12

Did you apply for exception?
If not you are stuck with VAT
Because a temporary cessation over 30 days......

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By Jason Croke
11th Nov 2020 14:04

You state that you wrote to HMRC stating the client had ceased to trade - so that was in effect asking for "exception" from registration. HMRC would have responded in writing confirming they accept your request but to continue to monitor turnover going forwards.

That, to me is the starting point. If HMRC have given the green light not to register back in March 2020 then you can use the normal rolling 12 month calculation to determine if or when the business needs to register for VAT. You don't say by how much the businesses exceeded the threshold in March 2020, so if the backwards look test in April 2020 still has them over the threshold...

You say going back twelve months from now and business under the threshold, but you should be doing a rolling 12 month test EVERY month even if no sales, so March, April, May, etc. You can't just start the rolling 12 month test from November. for example, if the client only started trading November 2019 and hit £85k by March 2020 then made no more sales until November 2020, it is all still within the 12 month look.

If you did not send a letter to HMRC or more importantly, if HMRC did not acknowledge and confirm the exception from registration, then it would seem that the business breached the threshold end of March with an obligation to register for VAT from 01 May 2020 and the invoice being raised this month would therefore be VATable (but only once a VAT number has been issued by HMRC of course).

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By Paul Crowley
11th Nov 2020 19:37

A bit grey but
Considered a new company?

If not viable as contract is with old co
Put in writing honestly giving all turnover by month for the last two years, as you must advise HMRC that the cessation of trade was temporary. Company did not trade continuously with months of nil. The nils are disregarded

Or at least that is my understanding

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