VAT Registration Issues

The freeze on the VAT threshold in a period of high inflation and rising prices, means that more small traders will need to register for VAT. There are plenty trying to find (legal) ways of splitting their businesses to stay under the threshold.

When considering whether you have breached the £85,000 registration threshold you only consider standard rated, zero rated and reduced supplies. Income that is exempt or outside the scope of VAT is excluded.

To determine if you need to register you calculate your turnover on a rolling 12 month at the end of every month. When your 12-month total hits £85000, you have a month to register, and you will then be registered from the 1st day of the next following month. In other words you get a month’s grace after you hit the threshold.

Non-UK established traders have to register as soon as they have (or expect to have) any taxable income. They do not get the £85,000 threshold.

You can register on a voluntary basis provided you have, or expect to have, taxable income. Registering on a voluntary basis should mean the business can start to recover input tax straight away.

Where a business has only income that is outside the scope but that would be taxable if the supply was made in the UK, it is possible to register on a voluntary basis.

When the trade and assets are sold by a taxable person as a going concern, the buyer will inherit the seller’s turnover for registration purposes. As a result, where the seller was registered on a compulsory basis, the buyer will also be registered on a compulsory basis from the purchase date. The transfer will then be outside the scope of VAT as a TOGC.

If the seller is registered on a voluntary basis, the buyer will still inherit the seller’s turnover, but they can choose not to register for VAT.  However, in order for the transfer to be a TOGC, the buyer must be VAT registered so, if they are not, vat is chargeable on the business sale.



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