VAT registration is easy...isn't it?

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Welcome to this first blog post!

I have had two or three conversations just today that related to VAT registration, and the recently reported case of Cambrian Hydro Power Ltd that I read today made me decide that today must be VAT registration day!

The main point I wanted to throw up for debate was the benefits to the taxpayer and tax authorities of online VAT registrations.  At present these are not compulsory, but that day will come soon I believe.  The process has just been extended to group registrations and taxpayers now have an ability to attach documents, such as invoices, contracts etc with VAT registrations.  This is all theoretically good stuff and will allow many taxpayers to avoid paying advisory fees in setting up a VAT registration.  Many people I speak with regard VAT registrations as being 'dead easy', and this is obviously helped by the processes online, much the same as people remark how easy it is to buy things and pay for them in 1 or 2 clicks on Amazon.  Easy...but is it a good idea?

My 25 years in VAT (a few of them working in a local VAT office registration unit...yes folks, there was a day before Wolverhampton where we issued numbers manually from a VAT office...) has demonstrated to me that registrations remain one of the most complex areas, so why is it that HMRC has fostered a belief that this process can be dealt with online?  One wonders whether HMRC see the simplicity in terms of revenue benefits.  Let me explain...

Without even thinking really hard, here are a few issues that often crop up that can be missed really easily to the detriment of taxpayers.  Following the case I mentioned at the start, there may be more room to move, but generally speaking, once you have gone ahead with a registration, you are stuck with it and all that follows.

1. Missing a prior registration threshold

As the threshold is calculated on a rolling basis, and is calculated on a cash and not invoice basis, it can be really easy to register late.  Penalties etc will ensue!

2. Registering when the threshold has not been breached

For the same reasons, and add to this the different VAT treatment of business asset sales, donations, some deposits, overseas sales, exempt sales etc, it can be easy to register when you may just fall below the threshold.  Unfortunately, once registered, you have to go through with this and then try and deregister.

3. Not taking advantage of the retrospective registration rules

This was the issue at the heart of the recent Cambrian Power case. Registration was requested from 1 January 2012 but a month later the company applied for it to be backdated to April 2009, so that input tax could be recovered in 2009 and 2010.  HMRC refused, as their policy is that a registration date cannot be altered once set up (subject to fraud etc) unless HMRC were at error.  However HMRC's manuals indicated they can potentially allow retrospection in limited circumstances if there is a genuine error by the taxpayer.  This was enough for the company to win the appeal, because the company claimed it had not known (at the time) that the date requested would deny prior VAT relief.   HMRC may appeal and I would suggest would similarly refuse in other cases.

Retrospective registration is available to both businesses established for some time and may be available to new businesses.  Even where sales have already been made (without charging VAT), provided the additional VAT could be collected from the customer, a business can sometimes end up as a net winner due to the input tax that can be recovered. The same goes for preparatory activities before sales are made.  And remember too that input tax may be recoverable up to 8 years before the present date as pre-registration VAT may be recoverable up to 4 years before the actual date of registration, which in itself can be 4 years ago.

The main point I wanted to make is that VAT registrations are an easy process to deal with, but are very difficult to get right and I would advocate that professional advice is taken in all but the simplest cases, before the submit button is pressed!

I would welcome any thoughts on the online processes.

About The VAT Doctor

I have been involved in VAT for over 25 years and have worked for some of the top firms in the UK and also had a spell working in New Zealand. I advise small and medium businesses and accountancy practices and have particular experience in education, charities, international supplies and partial exemption. I am based in the beautiful county of Norfolk.

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