The Ultimate VAT Guide: When to Register (and What Happens If You’re Late)
Sarah Bunn
9/30/20263 min read
Running a growing business is an incredible achievement, but it comes with a shifting landscape of financial milestones. One of the biggest milestones—and the one that sparks the most anxiety for small business owners—is Value Added Tax (VAT).
VAT is a topic confusing to many. You might be wondering exactly when your turnover triggers the legal requirement to register, or perhaps you are losing sleep over a nagging worry: “What if I was supposed to register months ago and missed the boat?”
If you are feeling overwhelmed, take a deep breath. In this very first blog post, we are breaking down the complexities of VAT into plain English. We will explore the exact triggers that mean it’s time to register, and provide a clear, stress-free roadmap of exactly what to do if you realise you are late to the party.
You have a legal obligation to register your business for VAT once its taxable turnover reaches or goes above the VAT registration threshold which is currently £90,000, in a 12-month period. HMRC guidance on VAT exempt businesses
Making Tax Digital (MTD) legislation became mandatory for all VAT registered business in April 2022. This means you need to keep accounting records digital (on software) and submit your VAT returns directly from that software.
When should I register for VAT?
You must register for VAT if:
Your turnover exceeds the £90,000 registration threshold in the accounting year
Your turnover is likely to exceed the £90,000 threshold in the next 30 days
You purchase a business as a going concern, and it is already VAT registered
What happens if I don’t register for VAT on time?
Don’t panic – act. HMRC penalises delay but they can reward honesty and swift corrective action. Hand your records over to a bookkeeper to sort out late registration lets HMRC know you are taking your obligations seriously but failing to register for VAT with HMRC and failing to deal with it promptly means that you will face penalties.
How much are the penalties?
The penalties for failing to register for VAT on time vary depending on how late you were. There is a minimum penalty of £50 but the fine is worked out based on how late you were registering.
HMRC will also expect you to pay any VAT you should have charged on taxable sales during that period, even though you didn’t collect it from your customers - and may not be able to.
HMRC will backdate your VAT registration to the date you should have registered, meaning you will owe VAT on everything you sold from that date, whether or not you charged your customer for VAT.
How late was your VAT registration? The penalty
Nine months or under 5% of what you owe, on top of what should have been paid
Between nine and 18 months late 10% of what you owe, on top of what should have been paid
Over 18 months 15% of what you owe, on top of what should have been paid
How will I know I have a penalty for late registration?
HMRC will notify you of any penalties in writing, and include guidelines for appealing the decision.
Can I appeal?
HMRC will consider an appeal if you believe you have a ‘reasonable excuse’ for not registering for VAT on time. Although no legal definition exists of ‘reasonable excuse’, there are circumstances which may be accepted by HMRC. All cases are looked at by HMRC on an individual basis.
A ‘reasonable excuse’ could be;
· Serious illness of you or a family member
· Bereavement of a close family member close to the time of required registration
· A known problem with HMRC’s online services
· Severe disruption to your business (e.g. fire or flood)
Once HMRC issue a penalty you have 30 days, starting from the date on the letter, to appeal the decision.
Penalties when you are registered for VAT
As well as late registration penalties, there are charges for VAT registered businesses who are late submitting their VAT returns.
What should you do if you cannot pay your VAT bill?
Contact HMRC straight away if you can’t pay your VAT bill on time. Even if you can’t pay the whole bill, you should still submit the VAT return to avoid additional penalties and speak to HMRC as a matter of urgency.
Different VAT schemes have might have different rules, so check the requirements for your scheme on HMRC’s website.
Dealing with HMRC can feel daunting if you’ve made a mistake or fallen behind on compliance. Partnering with a professional bookkeeper to sort out the back data and submit an ‘unprompted disclosure’ shows you are taking ‘reasonable care’ and are committed to complying.
This proactive step could mitigate late-registration penalties down to zero.
