Debate: Zero-rated and VAT registration

[ArabianNights]

Someone please put me out of my misery …

I am in a debate with someone who thinks that trading in zero-rated supplies / products mean that you have register for VAT. From what I see from HMRC in the link below, a company trading in Zero-rates supplies or products doesn’t have to register for VAT. Here is the link:

Who should register for VAT — VAT Notice 700/1

www.gov.uk

This person I am debating with however, insists that according to a number of ‘online sources’ and ‘accountants’ that trading in zero rates services / products triggers a VAT registration. Please enlighten me.

Also, do foreign reverse charge transactions count towards the VAT threshold? I am saying yes, yet they are saying those sales don’t. Confused.com

 

[japancool]

"A taxable supply is any supply made in the UK which is not exempt from VAT. Taxable supplies include those which are zero-rated for VAT."

Zero-rated and exempt are two different things.

 

[ArabianNights]

"A taxable supply is any supply made in the UK which is not exempt from VAT. Taxable supplies include those which are zero-rated for VAT."

Zero-rated and exempt are two different things.

Yes, I realise that zero rated supply and exempt supplies are 2 different things. Though that isn’t the question of my post.

 

[japancool]

You can always ring them and ask.

 

[ArabianNights]

You can always ring them and ask.

I guess most questions on this forum could be answered by a call to HMRC ?

 

[DWS]

Trading in zero rated goods does not mean you have to register for VAT, only once you exceed the threshold.

Zero rated exports you make do count as turnover towards the VAT threshold.

 

[ArabianNights]

Trading in zero rated goods does not mean you have to register for VAT, only once you exceed the threshold.

Zero rated exports you make do count as turnover towards the VAT threshold.

So I assume that foreign reverse charge transactions also count towards the threshold?

 

[DWS]

So I assume that foreign reverse charge transactions also count towards the threshold?

Yes

 

[ArabianNights]

Yes

Thanks

 

[Bobbo]

Zero rated supplies contribute to the registration threshold. So the default position is that a trader of zero-rated goods would be required to register for VAT if they breached the threshold.

As seen under 3.11 of VAT Notice 700/1 linked to above sets out, if all or most sales are zero rated you can apply for exemption from registration (you cannot just ignore VAT registration altogether). Though it may not be financially a good idea to do so.

 

[ArabianNights]

Zero rated supplies contribute to the registration threshold. So the default position is that a trader of zero-rated goods would be required to register for VAT if they breached the threshold.

As seen under 3.11 of VAT Notice 700/1 linked to above sets out, if all or most sales are zero rated you can apply for exemption from registration (you cannot just ignore VAT registration altogether). Though it may not be financially a good idea to do so.

This is exactly my argument.

But the person I am debating has shown me many online sources including other forums, where accountants and others are of the opinion that trading zero rated services / products triggers a VAT registration! Obviously a LOT of incorrect information out there!

 

[DefinitelyMaybeUK]

accountants and others are of the opinion that trading zero rated services / products triggers a VAT registration

Isn't the trigger part technically true should the threshold be exceeded - the caveat is that you could equally apply for an exemption as per 3.11?

 

[Bobbo]

Isn't the trigger part technically true should the threshold be exceeded - the caveat is that you could equally apply for an exemption as per 3.11?

This is it.

Exceeding the threshold from sales of zero rated goods very much triggers a requirement to register for VAT, at which point the trader would need to apply for exemption from registration. That application could well be rejected by HMRC resulting in a VAT registration.


Daresay there is plenty of incorrect information out there. But i'd imagine the majority of accountants wouldn't be recommending a client making only zero-rated sales accepts HMRC's generous offer of exception from registration.

 

[lesvatadvice]

I guess most questions on this forum could be answered by a call to HMRC ?

Perhaps.
But you will not receive ADVICE. You are more likely to receive a reference to a HMRC Notice. You will not know whether that is the best option for you.

 

[Daybooks]

VAT registration is compulsory when your taxable turnover exceeds the threshold for the previous twelve months or is expected to be more than the threshold in the next thirty days. Taxable turnover includes reduced rate and zero rated supplies.

A person who would otherwise be required to register for VAT in the UK may apply to HMRC for exemption from registration if the supplies are wholly or mainly subject to VAT at the zero-rate and would result in VAT repayments.

Confusion may stem from the fact there is no specific form to apply for exemption. The application for exemption is on the registration Form VAT1 where after confirming you are required to be registered you can apply for exemption either on the grounds of temporary breach (box 10) or mostly zero rated (box 11) and you can demonstrate you would be in a VAT repayment position over the next twelve months.

You will then either be granted the exemption or registered from your due date.

Remember if you would be due to pay VAT during this period then you wouldn’t get exemption. Also worth remembering that if you are in a net repayable position then it could be to your advantage to register. However there may be other things to consider especially if you also have exempt supplies - one for another day.

Reverse charge under s5.7 VAT Notice 741A are included in the taxable sales for determining the requirement to register.

 

[ArabianNights]

VAT registration is compulsory when your taxable turnover exceeds the threshold for the previous twelve months or is expected to be more than the threshold in the next thirty days. Taxable turnover includes reduced rate and zero rated supplies.

A person who would otherwise be required to register for VAT in the UK may apply to HMRC for exemption from registration if the supplies are wholly or mainly subject to VAT at the zero-rate and would result in VAT repayments.

Confusion may stem from the fact there is no specific form to apply for exemption. The application for exemption is on the registration Form VAT1 where after confirming you are required to be registered you can apply for exemption either on the grounds of temporary breach (box 10) or mostly zero rated (box 11) and you can demonstrate you would be in a VAT repayment position over the next twelve months.

You will then either be granted the exemption or registered from your due date.

Remember if you would be due to pay VAT during this period then you wouldn’t get exemption. Also worth remembering that if you are in a net repayable position then it could be to your advantage to register. However there may be other things to consider especially if you also have exempt supplies - one for another day.

Reverse charge under s5.7 VAT Notice 741A are included in the taxable sales for determining the requirement to register.

Thank you!

 

[ArabianNights]

Perhaps.
But you will not receive ADVICE. You are more likely to receive a reference to a HMRC Notice. You will not know whether that is the best option for you.

Wasn’t really looking for advice. Just peoples’ opinions on a subject of ongoing debate.

 

[vivente]

This is quite simple from my point of view. You have taxable and non taxable supplies. Taxable supplies are those that fall within any VATable supply and then there are those that are out of scope. Please note taxable supply includes zero rated and exempt. Therefore if turnover exceeds £85,000 within a 12 month period for all taxable supplies then you must register. If not then you don't have to do but may choose to do so. Your choice. Not that complicated. Now I'm neither and Accountant or Tax or Advisor therefore take of that what you may.

 

[Daybooks]

Please note taxable supply includes zero rated and exempt.

Exempt supplies are not taxable supplies. S4.1 VAT Notice 700 refers with the force of law at VAT Act 1994 4(2) A taxable supply is a supply of goods or services made in the United Kingdom other than an exempt supply.

 

[vivente]

Exempt supplies are not taxable supplies. S4.1 VAT Notice 700 refers with the force of law at VAT Act 1994 4(2) A taxable supply is a supply of goods or services made in the United Kingdom other than an exempt supply.

Many thanks. I didn't realise that. I knew out of scope existed and exempt existed as two distinct things therefore if both are not taxable supplies then why the need for two different names? Turns out exempt are included as turnover in the flat rate scheme and out of scope is not hence why a difference exists. Also exempt purchases and sales are reported and out scope are not.

That all means turnover as regards registrations is still about taxable supplies but as exempt is not a taxable supply it does not form part of the turnover figure to determine if registration is required. Zero rated still does as it is a taxable supply still. Hope I have that right now

 

[Daybooks]

I knew out of scope existed and exempt existed as two distinct things therefore if both are not taxable supplies then why the need for two different names?

The terms have different meanings and implications but is not the direct topic or question of the OP which we should respect. Thanks.