About to hit the VAT threshold? Don’t delay in registering

Businesses on the verge of reaching the threshold for VAT should apply for their registration sooner rather than later.

HMRC admits it is taking 40 working days to complete a registration and provide a VAT number. In reality, it can take even longer to send a VAT number through. One of our clients at Optimum has been waiting since March, because every time a number is allegedly posted it goes astray. This client is one of seven of ours who are awaiting a VAT number, and the situation is being mirrored across the country. 

What are the implications of trading without a VAT number? 

Not having a VAT number does present a problem. A business must start accounting for VAT from the ‘effective date of registration’. This is the end of the month following the relevant month from which the business was obliged to register. This obligation kicks in as soon as the business’s turnover exceeds £85,000 during the previous 12 months. Businesses which voluntarily register will have agreed their date with HMRC. 

From the date of registration, all invoices should include VAT. However, the business is technically unable to charge VAT without a VAT number. 

While waiting for the VAT number, during the interim period HMRC recommends that businesses adjust their prices to reflect the gross amount received. VAT should not be shown separately on any invoice. 

The disadvantage is that customers are likely to raise concerns that they will be unable to claim this amount back. The business should later follow up their invoices with a VAT number once it has been issued by HMRC, but this adds an additional burden. 

The current £85,000 threshold has been in place since 2017 and the Government has said this will not change until at least March 2024. This means that as prices rise, and therefore turnovers increase, more and more businesses are having to register. The hidden costs and the inconvenience is startling. 

Our advice is to plan ahead and apply for a VAT number as early as possible.  

If you are about to hit that £85,000 threshold or have any concerns about VAT or tax in general, please get in touch with the tax team at Optimum. Email Michael Blaken: [email protected].