What happens if you don’t register for VAT when you should

If you have been putting off crucial business steps, you know there has to be a better way. If you don’t register for VAT once you have hit the threshold, your e-commerce business is going to accrue penalties, making the problem worse, not better.

Running an e-commerce business can keep you rushed off your feet, particularly at seasonal times and during periods of rapid growth, but that’s no excuse to avoid the admin side of your business. Delaying important paperwork is only going to add to your stress and your to-do list and in the case of VAT, if you don’t register when required, there can be serious financial consequences.

In some circumstances, it may be the case that you forget to register for VAT if you experience rapid or unexpected growth that takes your business above the threshold. However, HMRC is unforgiving and will issue penalty payments to anybody who fails to register when they should.

When must I register for VAT?

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While there are pros and cons to registering for VAT before you hit the mandatory registration threshold, once your e-commerce business sales exceed the threshold you no longer have a choice. The 2022/23 VAT registration threshold is £85,000. If your business’ taxable turnover exceeds this amount or is going to in the next 30 days, you must register.

Registering for VAT before it becomes a mandatory requirement for your business can reduce the stress of applying when the time comes.

If you decide to wait until it is necessary to register for VAT, the date of registration should be the date you realise your business will exceed the threshold, not when it hits that point.

What is the 12 month VAT rule? 

Every month, it’s important that you keep a total of your sales for that month. This is because, for VAT to be calculated accurately, you will need to keep a 12 month running total, that is, the total amount for that month and the preceding 11 months of your VAT taxable turnover.

The consequences if you don’t register for VAT

If your business is over the VAT registration threshold and you haven’t registered, then penalties will be applied. The penalty amount is variable, as it reflects the amount of VAT due, and how long ago you should have registered – see this as a call to action. If you should have registered already, registering as soon as possible could still limit the penalties applied to your account.

The penalty is calculated as a percentage of your overdue VAT payments. If you should have registered in the last nine months, the additional liability will be five per cent. If you are more than nine months late, but less than 18 months late, this jumps to 10 per cent. If you have delayed your registration by more than 18 months, it is 15 per cent.

There is a minimum penalty of £50 for any late registrations or missed VAT payments.

You'll need to register when you hit the VAT registration threshold
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Reasons for not registering for VAT

HMRC do have a list of mitigating circumstances that can be used to avoid a late registration penalty, but you will likely have to attend a tribunal or provide documentation to prove the circumstances are valid.

The circumstances listed on the HMRC website are:

  • Bereavement of a close family member
  • Serious illness
  • Doubt about the liability of supplies
  • Uncertainty of employment status

They do not accept ignorance of the requirement to register or a lack of funds to pay your VAT liabilities. If you fail to register for VAT when you become liable to do so, you should not expect to get off lightly or without serious repercussions.

You can also apply for registration exemption if your taxable turnover goes over the threshold temporarily. To prove this, you will have to write to HMRC with evidence. You can find out more information, here.


Next steps for VAT registration

If you do need to register, don’t delay. If you don’t register for VAT, you will have penalties to pay on top of your existing VAT liability, and the longer you wait, the worse it can get. If you’re worried about not having the available cash flow to pay your VAT liabilities, get in touch with an accountant as soon as possible.

Once you are ready to register or if you’ve got an urgent requirement to register we can get you onto a priority registration queue, so simply get in touch with our team.

We will be happy to help you choose the right VAT scheme for your business and ensure you are compliant with Making Tax Digital requirements.

The best time to start is now.


Future Compliance

Once your business is registered for VAT, it’s incredibly important that you comply with all VAT rules going forward, in order to avoid any future issues or penalties. After all, late VAT registration can have several implications for your day to day business operations.

Each quarter, you will need to complete a VAT return and meet the submission deadline, which is one calendar month and seven days after the end of the VAT quarter. And one of the best ways to keep up with your VAT payments is to set up a direct debit, so that you don’t need to worry about meeting deadlines.  Ultimately, practicing good bookkeeping will ensure that you not only remain informed with current VAT legislation but that all payments are also made on time and in full.

A qualified accountant will always ensure that you are fully compliant with VAT regulations and ensure that you do not receive potential penalties. And remember, it’s also incredibly important that your business remains in good standing with HMRC.

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