Our website uses cookies to enhance the visitor experience (what's a cookieCookies are small text files that are stored on your computer when you visit a website. They are mainly used as a way of improving the website functionalities or to provide more advanced statistical data.). Are you happy for us to use cookies during your visits?
Please note: continuing without making a choice equates to giving us your consent, which you can withdraw at any time via our cookies policy page.

VAT Registration Problems and Keeping Below the VAT Limit

Newsletter issue - July 07.

The compulsory VAT registration threshold is now£64,000 for sales made in any twelve month period. If your sales are expected to top that threshold in the near future you need to apply to be registered for VAT without delay. On the VAT1 application form you need to set the commencement for your VAT registration at a date that is no more than a month after your sales reach£64,000. As it currently takes up to three months to get VAT registered, you need to be able predict your future sales quite accurately, and keep a close eye on your past sales for a rolling 12-month period.

These problems can be avoided if your sales stay just below the£64,000 threshold. Where you have one particular successful strand of your business, you may consider splitting-off that line of sales into new business to keep your core sales below the VAT threshold. However, business splitting must be done on a fully commercial basis as the VATman takes a dim view of any artificial division that is purely designed to avoid VAT registration.

A business split works best if the two new businesses are run through separate legal entities, such as a partnership and a limited company, and each services a different set of customers. For example, commercial customers buy from one business and private individuals from the other. The purchases for each business should be made completely separately, and separate accounting records and bank accounts set-up. If one business owns the premises that they both trade out of, the second business should pay a market rent for its use of the space.

The VATman can challenge a business split if he can show the separation is artificial, the two businesses are closely bound by financial, economic or organisation links, and the split results in VAT avoidance. However even if he does decide that the two businesses actually operate as one, he can only insist that they are combined for VAT purposes from the date of his decision. That may mean that both businesses must immediately become VAT registered.

  • Auto enrolment icon

    Auto Enrolment

    Workplace pensions rules are changing.
    Be prepared for auto enrolment, see how we
    can help and read up on our guidance notes.

    More

  • Cloud accounting icon

    Cloud Accounting

    With our online bookkeeping packages, our support
    services are only a click away.
    Discover cloud accountancy solutions to bring your finances up to date.
    More

  • Pay less tax icon

    Pay Less Tax

    Our experienced tax advisors can help you
    make the most of your options to reduce
    your tax bills.

    More

  • Make more profit icon

    Make More Profit

    From business plans to management accounts,
    our business services will ensure you are in
    control of your business finances.

    More

  • Source finance icon

    Source Finance

    Our experienced partners can guide you
    in getting the finance you need to make
    your business grow. Read our guides or
    contact us for a free consultation.
    More

  • Outsource your payroll icon

    Outsource Your Payroll

    Let us handle payroll compliance for your
    business. We can deal with HMRC on your
    behalf, and take the stress out of RTI.

    More