VAT registration

Budget 2021 continued the freeze on the registration limit at £85,000 until at least 31 March 2024 to provide businesses with “continuing certainty”. The Government has acknowledged the distortive impact that the threshold can create, while at the same time recognising that it simplifies things for smaller businesses. (There is no threshold for those without a UK establishment.)

Against that background, this insight looks at some of the more common ways that VAT registration may be sidestepped without falling foul of the VAT man.

Get out of jail card 1 – exception from registration

If you or your client’s turnover goes over the VAT registration limit in a 12-month period but you know it’s genuinely a “one-off”, you may be able to avoid having to register as a result. If you can convince HMRC that your turnover in the following 12 months will be less than the de-registration limit (currently £83k) then it may grant you “exception” from registration. This can also be successfully applied for after the event.

Example 1 – Dominic the builder

Dominic usually only supplies labour and his turnover is around £60k a year. However, in 2020 he takes on a job where the client insists that he supply the materials too. As a result, he has sales in the 12 months to 31 December 2020 of £86k. But he intends to stick to labour-only jobs in 2021. If he can convince HMRC that his turnover will not exceed £83k in the period to 31 December 2021, then it should grant him exception from registration.

Get out of jail card 2 – outside the scope activities

The value of supplies that are outside the scope of UK VAT does not count towards the registration limit. This means a client who is established in the UK should not include the value of services that are within the general B2B rule when these are supplied to businesses outside the UK.

Example 2 – Gerry the consultant

Gerry is a UK-based consultant and advises manufacturers in the UK, Italy and France. His total turnover amounts to £200k, of which £150k comes from Italian and French clients. He is not required to register for UK VAT as his turnover from taxable supplies in the UK amounts to only £50k. Nonetheless, he should retain evidence to demonstrate that his clients are in business and are based outside the UK.

Get out of jail card 3 – VAT exempt activities

If you are VAT-registered and using the flat-rate scheme, you include the value of exempt supplies in calculating the VAT you owe HMRC. But you don’t include the value of such supplies when working out whether you are liable to register in the first place. This is something that not all advisers or HMRC officers (especially those from an Inland Revenue background) always recognise. Common sources of error include the following:

Private tuition in a school or university subject

This is VAT exempt when given by an individual or a partner acting in their own names.

Livery

So long as this is structured correctly so that the horse’s owner is granted a right over land, the supply of livery remains VAT exempt. The rules making self-storage automatically subject to VAT specifically exclude the supply of “storage” for live animals.

Get out of jail card 4 – TOMS

Mention of the Tour Operators Margin Scheme (“TOMS”) normally leads to a groan from traders and their advisers alike. But if your turnover includes TOMS supplies, then in determining whether you are liable to register, it is only the margin from TOMS supplies and not the sales that should be included.

Download pdf version

To discuss how this may affect your clients or your business, or to talk about a VAT issue in general, please get in touch.
Get in touch
This year we are sponsoring
Request Information