Before rushing to register your clients you should ensure that they made taxable supplies that have exceeded the threshold and at what date. You will need to consider the liability of supplies made and whether the place of supply is the UK.
Compulsory registration only applies when taxable supplies made in the UK exceed £85000 on a rolling 12-month basis, not a financial year. You should only include those supplies of goods and services that would attract VAT at the standard, reduced, or zero-rate once registered, together with the value of imported services to which the reverse charge would apply.
Supplies that are exempt from VAT or outside the scope of VAT are ignored as far as the threshold is concerned. This would mean that a client who only provides services to overseas business customers, where the place of supply is the customer’s country, is not required to register; for those clients who only make exempt supplies, registration is not allowed.
When you have narrowed it down to the clients whose taxable supplies have exceeded the threshold, then you can consider those clients that only make zero-rated supplies. These clients would be receiving regular repayments of input tax. By ticking the relevant box on the VAT1 HMRC can be requested to grant exemption from registration, and this should be considered where the cost of submitting returns exceeds the amount of any repayment HMRC Notice 700/1, para. 3.11refers
For those remaining clients, you will now need to establish the correct date of registration. There are two tests for compulsory registration- the backward look and the forward look.
When considering the backward look, the registration test is carried out on a rolling 12-month basis and a business has a liability to be registered when it has exceeded the threshold at the end of any historic 12-month period. The effective date of registration or EDR is the first day of the second month after the limit has been exceeded. The forward look applies if the threshold is exceeded in any one 30 day period alone and then the registration date is the beginning of the 30 day period.
You should now consider whether the increase in sales was due to a one-off event outside the normal trading pattern of the business as it is possible to ask for an exception from registration. Where this has occurred and you can demonstrate that sales in the following 12 months did not exceed the deregistration threshold of £83000 HMRC may grant an exception from registration. HMRC Notice 700/1, para. 3.11 refers.
For those clients who are required to be registered, it is worth considering whether an even earlier date than the EDR established would be beneficial. A business has the option to voluntarily register on a retrospective basis for up to four years from the application date. Where the customers are VAT registered and happy to accept VAT only invoices then related input tax can be recovered. Additionally, the business can also recover pre-registration input tax. In the case of goods, the time window for pre-registration extends to four years before registration, as long as the goods were used in the business during that time and are still owned on the first day of VAT registration, for services these can be recovered up to 6 months before. This effectively means that VAT on assets purchased up to 8 years before could be recovered thus reducing overall VAT due to HMRC on the first return. Value Added Tax Regulations 1995 (SI 1995/2518) reg111– Exceptional claims for VAT relief refers
A final point to consider is whether turnover fell below the threshold for deregistration subsequently, so the client would not be registerable at the current date. In those circumstances rather than registering HMRC can treat your client as Liable No Longer Liable and issue an assessment for a Crown debt, this treatment is worth considering where there is minimal input tax to be reclaimed it is HMRC’s policy to allow 15% for input tax recovery against any output tax due.
Please share this article with your clients
If you have a VAT query why not contact the VAT Advice Line on 0844 892 2470 to discuss the implications. Our team of experts have a wealth of experience and can also provide a written consultancy service at competitive rates.