Many businesses suffered a big loss during the pandemic months. However, a lot of companies have had a boom in sales when they transferred their business to trading online. The increase in sales have probably sent such businesses over the VAT registration threshold limit for the first time. In such situation it is important to establish whether the increase is permanent or temporary.
Tip: if the increase in sales is likely to be permanent, you need to consider registering for VAT. The registration threshold in the UK is £85,000. If the total taxable turnover exceeded this amount in the recent 12 months, the business should be registered for VAT from the date it happened.
Tip: on the other hand, if a VAT registered business has suffered a decrease in sales, and the decline is likely to be permanent, the business might consider deregistration if they do not expect their sales to be more than £83,000 in the next 12 months.
Trap: All the output tax on some stock and assets you own will be declared upon the registration in the final return.
Example
Sarah sells vending equipment online. Her rolling twelve-months sales exceeded the £85,000 threshold for the first time on 31st of June 2021. Her compulsory V
AT registration should start on the 1st of July 2021, unless she can find an escape route.
Exemption from registration
You can escape the compulsory registration if you will be able to convince HMRC that the increase in sales is only temporary and the taxable sales will not exceed the deregistration threshold of £83,000 in the next 12 months.
For example, a small business can have an increased sales as a one-off case when they have got a project to supply some services and materials as supplementary arrangement. This can be classed as a one-off situation which is not likely to repeat regularly.
How to apply for an exception?
You should apply to HMRC for an exception within 30 days of the date you went over the VAT limit. Sometimes this deadline can be missed as long as the business can clearly explain why they believe the future sales will be less than £83,000. You need to look back in time to the first instance when the registration threshold was exceeded to assess the trading circumstances.
You may also consider VAT registration if there is a lot of input tax to be claimed.
Conclusion
The company must decide if the temporary boom of sales volumes is only temporary. If so, you can apply to HMRC for an exception from being VAT registered if you believe that the future sales will be less than the deregistration threshold of £83,000. You need to explain the circumstances that existed when you first went over the regstr5aton threshold.
Further read:
How to cancel your VAT registration
Changes to VAT registration details
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