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A hardy perennial

11th May 2016
VAT Consultant vatadvice.org
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It is still a common situation where a taxpayer exceeds the registration threshold, and only identifies it several months later. An argument is then raised that the taxpayer (in retrospect) expected his turnover to fall below the threshold in the next twelve months. He therefore asks for exception from registration, under the terms of Sch 1, para 4.

There are numerous cases on similar facts. A recent one was: Ken Renforth T/A Façade Detailing Service [2016] UKFTT 245 (http://www.financeandtaxtribunals.gov.uk/Aspx/view.aspx?id=9001 ).

The approach of HMRC is this:

  • That the Commissioners must take into account only those facts which would have been available at the time the threshold was breached and cannot consider information that became available later or with the benefit of hindsight.
  • The Commissioners must come to the decision that they believe would have been made at the time when the threshold was breached. (see para 18(a) & (b))

The High Court has upheld this approach, and therefore the First Tier Tribunal is bound to follow it. The precedent is Gray (trading as William Gray & Sons) v CCE (http://www.bailii.org/ew/cases/EWHC/Ch/2000/1567.html ).

Interestingly, an argument for HMRC stated that the retrospective application of the future turnover test may lead to a taxpayer gaining an unfair advantage over a similar taxpayer who advised his liability to register at the proper time.

When a taxpayer has a liability to notify HMRC that he/she has exceeded the registration threshold, an application for exception from registration can be made at the same time, but only if the taxpayer expects his/her turnover to drop below the (deregistration) threshold in the following 12 months. An Appeal against HMRC’s decision not to allow exception is based on whether HMRC acted reasonably in making their decision.

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The triggle is a distant cousin of the squonk (pictured)
By Triggle
11th May 2016 20:06

Hi Les

Sorry to be pedantic but I think the term you mean to use where the tax payer seeks to avoid VAT registration when they temporarily exceed the registration threshold is a VAT exception (not a VAT exemption).

A VAT exemption is where the taxpayer can ask to avoid VAT registration because their supplies are all or mainly zero rated (as detailed in note 17 in the notes to the VAT 1 form).

I recently had a case when a client had retrospectively exceeded the VAT threshold for a period of six months (don't ask - you know what they are like) and I did not complete a VAT 1 but wrote to HMRC instead giving the rolling annual turnover totals for the period affected to date and asked for the exception to be granted on the basis that the turnover had dropped below the deregistration threshold during the next six months.

I also stated that there would likely be no loss to the Treasury as my clients's accounts would be adjusted for the VAT resulting in a lower taxable profit plus the additional VAT claims possible due to the ability to go back 4 years to claim VAT on capital equipment and 6 months on services.

As ever, HMRC sent me the usual official questionnaire asking for 24 months worth of turnover figures spanning the period involved and details of any large one off contracts to show that exceeding the threshold was a one off blip and unlikely to happen again etc. etc.

I did so and the exception was granted.

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