Help! I didn’t realise I went over the VAT threshold

Your business must register for VAT if your turnover has exceeded the VAT threshold (currently £90,000) during the previous 12 months, or if you expect it to exceed that figure in the next 30 days.

The 12-month period is a ‘rolling period’; it is not based on the tax year or your own accounting year.

You also have to register if you buy a business that is already VAT-registered or if you take over another business and the combined turnover exceeds the threshold.

Deadlines for registration

For each of those situations, there is a strict deadline for registration.

If you exceeded the threshold in the last 12 months, you have to register within 30 days of the end of the month when you went over the threshold. The date of registration for VAT is the first day of the second month after you go over the threshold.

For example, you exceeded the threshold on 4th May 2024. You must register by the end of June 2024 and the effective date of registration is 1st July 2022.

If you expect to exceed the threshold in the next 30 days, you have to register by the end of that 30-day period. However, the effective date of registration is the date you realised that you would exceed the threshold, not the date your turnover will go over the threshold.

For example, you expect to exceed the threshold at the end of November 2024. You must register by 30th November 2024 and the effective date of registration is 1st November 2024.

Missing the deadline

These dates are set by law and strictly enforced by HMRC. If you fail to recognise that you are liable to register and miss the deadline, there are consequences.

HMRC can impose penalties and you will also have to pay any VAT that would have been due since the correct date of registration. Depending on the length of time between realisation and the correct date for registration, both the penalties and the VAT due could be considerable.

Penalties for late registration

The penalty is based on the amount of VAT you should have charged since the date of registration and how late you were in registering.

The penalties for failing to register for VAT on time vary, but there is a minimum penalty of £50. HMRC will notify you in writing of any penalties or payments due, as well explaining how to appeal.

Appealing a penalty

If you believe there is a reasonable excuse for missing the deadline, you can appeal to HMRC and they will consider your proposal.

There are no formal guidelines on excuses that HMRC consider reasonable and each case is reviewed on an individual basis. However, there may be circumstances that they consider acceptable.

For example, you may be the only person responsible for running the business and dealing with tax issues; personal illness or serious illness in your family instance may have prevented you dealing with registration at the correct time.

There may also be commercial issues that make it difficult or impossible to register or charge VAT at the correct time. An accountant or solicitor may be able to advise on this and provide relevant evidence.

If you do wish to appeal, you must contact HMRC within 30 days of the date the penalty was issued.

Process for late registration

Accuracy and honesty are essential if you realise that you have crossed the VAT threshold.

The first stage is to identify the exact date when your turnover for a 12-month period exceeded £90,000.

When you have established the date, contact HMRC and volunteer to register for VAT. Once you have notified HMRC, you can register online via your Government Gateway or ask your accountant or tax adviser to register on your behalf.

Provide HMRC with the correct date when turnover exceeded the threshold. Although it may be tempting to ‘move the date’, an HMRC investigation could land your business with even greater penalties for falsifying information.

Include any valid explanation for missing the due date for registration. This may give you an opportunity to appeal, or even avoid, any penalties.

Once your registration is complete, calculate all the VAT that you should have charged from the effective date of registration, in addition to reclaiming any VAT on purchases during the same period.

Submit your first VAT return to HMRC.  You may be able to combine all back-dated returns into a single return if HMRC are agreeable.

Make any payment of VAT and penalties due. Depending on your circumstances, you may be able to negotiate a repayment plan with HMRC.

Issue any current and future invoices as VAT invoices and submit returns on due dates.

Applying for a registration exception

There may be circumstances in which you only crossed the VAT threshold for a short period and have subsequently returned to lower trading levels without realising that you would have to register for VAT.

If you have evidence to prove that this was a temporary issue that will not recur, you can apply for a registration exception, which means you will not have to register for VAT.

To apply, write to HMRC and include evidence that shows why you believe your VAT taxable turnover will not exceed the deregistration threshold of £88,000 in the next 12 months. HMRC will decide to either grant the exception or register your business for VAT.

If HMRC accepts your request, they will confirm the exception in writing. If not, they will ask you to register for VAT and pay any VAT due from the correct date of registration, together with any penalties.

It’s important to contact HMRC as soon as you realise that an exception is possible. There may be a delay in dealing with your application and, if it fails, the penalties and VAT due will mount up.

Professional support

VAT registration and administration can be complex and time-consuming, particularly if you have inadvertently missed a VAT threshold. If you would like advice on registration or practical help with the process of registration or appealing, our experienced small business accountants can help. We can also review your businesses’ VAT returns to ensure that all your VAT codes are correct and everything is in order.

For more information, contact us, and we'll be in touch.

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