Went over VAT threshold 8 Months ago and never noticed - Help Appreciated

[Bitexxx]

Good evening guys,

I am a sole trader and have just completed my basic accounts and my small business went over the VAT threshold sometime during January without me noticing. This is due to Tinnitus destroying my concentration (I had to cease sales in this business during April until the current date due to this).

During January to April I made a total of ~£30,000 worth of sales (an unexpected figure that went way over previous months). Unfortunatley, as I understand it, I cannot make a backdated temporary VAT exemption plee due to it being over 30 days since the temporary upturn.

I am now £14,000 under the VAT threshold and wish to resume business. I would be very grateful if anyone in the know can answer the following question


Can I have the owed VAT taken at a flat rate value?

I ask as I do not have accountancy software so cannot sum the total input VAT unless I manually go through 12-15,000 sales via Amazon and eBays online records - and look up each against their respective invoices for each item sold.

If anyone has additional tips or information regarding this situation it would be very much appreciated.

Thankyou for your time

 

[Paul Kelly ICHYB]

You are probbaly best speaking to your accountant!

 

[MyAccountantOnline]

Good evening guys,

I am a sole trader and have just completed my basic accounts and my small business went over the VAT threshold sometime during January without me noticing. This is due to Tinnitus destroying my concentration (I had to cease sales in this business during April until the current date due to this).

During January to April I made a total of ~£30,000 worth of sales (an unexpected figure that went way over previous months). Unfortunatley, as I understand it, I cannot make a backdated temporary VAT exemption plee due to it being over 30 days since the temporary upturn.

I am now £14,000 under the VAT threshold and wish to resume business. I would be very grateful if anyone in the know can answer the following question


Can I have the owed VAT taken at a flat rate value?

I ask as I do not have accountancy software so cannot sum the total input VAT unless I manually go through 12-15,000 sales via Amazon and eBays online records - and look up each against their respective invoices for each item sold.

If anyone has additional tips or information regarding this situation it would be very much appreciated.

Thankyou for your time

You will need to notify HMRC and complete a VAT registration application from the date you should have been registered stating that you are asking for an exemption from registration as you will be trading below the deregistration limit and the increased turnover was a one-off, assuming this is the case.

HMRC will grant exemption if the turnover increase was a one-off and in future you will be trading below the deregistration threshold.

With your volume of sales and purchases you really do need to be using some accounting software. I wouldnt even consider using the flat rate scheme without seeing if it's beneficial first, you may pay substantial amounts of VAT unnecessarily.

 

[David Griffiths]

It is only possible to retrospectively apply from exemption from registration if at the time there was clear evidence that the turnover increase was a one-off. As an example, I had a client who got a £35,000 one off commission on a land deal, which took him over the threshold and wasn't going to recur. Although he failed to register on time, HMRC accepted that this evidence was available and that an application would have been successful.

In the case of the OP, it seems that there was no such clear cut case, and that increased turnover continued into April, which is after the date of registration - I think that the OP understands this from the comment made.

If the turnover went over the threshold in January, then registration is actually effective from 1 March, so there will be no VAT due on sales for the rest of January or February.

Normally I would say to do the sums on the flat rate scheme, but it's aimed as much at administrative simplicity as savings. I'd agree with the OP that if it's necessary to work through thousands of invoices then I'd take the risk that the FRS might cost me a few pennies! There would only be a need to go through individual sales invoices if there are zero rated sales included - if not you can simply take the gross sales and work the VAT from that.

Although in structness it isn't possible to back date use of the FRS before the current VAT quarter, in practice HMRC are usually amenable to agreeing to it being applied from the date of registration in these circumstances.

I'll second the point about accounting software. It isn't expensive, and gives valuable information. How much would have been saved if it had pinpointed the correct date of VAT registration - and the date that you could de-register.

Actually, I'm not sure that being £14,000 under the VAT threshold is of itself enough to deregister. Deregistration is based on the question of turnover in the next 12 months. If you have a temporary dip due to illness, there would be an expectation that things will revert to normal, so don't be surprised if HMRC ask more questions about this

 

[Philip Hoyle]

It is only possible to retrospectively apply from exemption from registration if at the time there was clear evidence that the turnover increase was a one-off.

I always thought that this was the case, but decided to try my luck on behalf of a client, a guest house who had inadvertently gone over the VAT threshold for a couple of months due to the timing of Easter and the school holidays. It's clear that this isn't a "one off" - it's simply trading patterns! I didn't discover it until many months afterwards and initial estimates of VAT liability and penalties were frightening. I decided to try my luck, sent in the VAT1 together with a letter from the client explaining the circumstances why the client hadn't realised at the time (critical illness of the spouse who did the books - which was true), but giving them a full monthly breakdown of turnover for the couple of years beforehand and all months afterwards, clearly showing that it was a coincidence of two peak months falling in the same year that usually fall in different years and that otherwise, the turnover was always below the de-registration threshold. We crossed our fingers and hoped, and yes, we got a result - they agreed to a VAT registration exemption. To the OP, I'd say give it a try and apply for an exemption, giving full reasons (excuses) and a full monthly turnover breakdown, before and after - you've nothing to lose!

 

[MyAccountantOnline]

I always thought that this was the case, but decided to try my luck on behalf of a client, a guest house who had inadvertently gone over the VAT threshold for a couple of months due to the timing of Easter and the school holidays. It's clear that this isn't a "one off" - it's simply trading patterns! I didn't discover it until many months afterwards and initial estimates of VAT liability and penalties were frightening. I decided to try my luck, sent in the VAT1 together with a letter from the client explaining the circumstances why the client hadn't realised at the time (critical illness of the spouse who did the books - which was true), but giving them a full monthly breakdown of turnover for the couple of years beforehand and all months afterwards, clearly showing that it was a coincidence of two peak months falling in the same year that usually fall in different years and that otherwise, the turnover was always below the de-registration threshold. We crossed our fingers and hoped, and yes, we got a result - they agreed to a VAT registration exemption. To the OP, I'd say give it a try and apply for an exemption, giving full reasons (excuses) and a full monthly turnover breakdown, before and after - you've nothing to lose!

One lucky client! That's certainly worth bearing in mind Philip thanks

 

[David Griffiths]

It's a problem with Easter being a moveable feast, so I can see that fitting in with the condition that it would be known at the time of registration that it's a one-off (until the next recurrence of Easter that is) and worth a try.

There's no harm in trying but I still think that the OPs circumstances are different

 

[Bitexxx]

Firstly I would like to thank everyone for the replies, they have all been very much appreciated. Apologies if any of the following is completely wrong

You are probbaly best speaking to your accountant!

I'v never had an accountant

Started trading in 2009/2010 and made a total profit of ~£3,000 - and completed the accounts/self assessment in ~10 hours of work, mainly due to having to total individual postage receipts (also using amazons and eBays reporting features/invoices/receipts etc.). This year I believe self assessment would have took ~14 hours if it were not for the VAT situation.

All our items are of the same type (for example if every item were cups) and every one was sold online - making the monthly reporting features adequate I believe for working profit (please correct me if Im wrong).

If the turnover went over the threshold in January, then registration is actually effective from 1 March, so there will be no VAT due on sales for the rest of January or February.

This is what interests me the most as just under 2/3's of the sales were January/Feburary. I was under the belief that as soon as I passed the threshold VAT was due on every sale. Could you please elaborate? I am going to see the nearby VAT office in the next few days and would like to be very clear on this. I sold for two weeks in April before closing, would this also be taken into account when suming the VAT owed directly

I wouldnt even consider using the flat rate scheme without seeing if it's beneficial first, you may pay substantial amounts of VAT unnecessarily.

I believe our Flat rate is 7.5% (will be confirming today)


All our items are sold online and VAT exempt postage accounts for ~50% of the value of every purchased item (every item we sell is the same and costs around £1 at purchase inc VAT)


£0.845 cost, input vat = £0.17. total ~£1.01
Postage = £0.47 for every order. £0.10 per packaging
Sell at £2.50 for example


Flat Rate = £0.1875
Normal Rate = £0.5 - (£0.17 + £0.02) = £0.31


I would be thankful of any corrections as this was worked out off the cuff, without much knowledge

 

[Bitexxx]

If the turnover went over the threshold in January, then registration is actually effective from 1 March, so there will be no VAT due on sales for the rest of January or February.

Hi Guys,

Can anyone confirm or deny this?

Just completed all accounts and the difference between this being true and false is ~£1,300 (if I get the flat rate), so its quite important

Thanks for your time

[edit] Will be registering for VAT online today, how would this work if true: give the date we went over (9th January) or the 1st March?

 

[Bitexxx]

Go and see a qualified accountant and maybe a bookkeeper for the future.

Accounts are done and I have no spare money. Hopefully someone with some experience of VAT can answer the previous two questions as we are in the accounts & finance section

 

[Jaydee]

Yes, it is correct.

Breaching the threshold in January = Register from 1 March.

 

[Bitexxx]

Yes, it is correct.

Breaching the threshold in January = Register from 1 March.

Hi Jaydee,

Thanks a lot for your reply, it's appreciated

 

[Spongebob]

It is only possible to retrospectively apply from exemption from registration if at the time there was clear evidence that the turnover increase was a one-off. As an example, I had a client who got a £35,000 one off commission on a land deal, which took him over the threshold and wasn't going to recur. Although he failed to register on time, HMRC accepted that this evidence was available and that an application would have been successful.

In the case of the OP, it seems that there was no such clear cut case, and that increased turnover continued into April, which is after the date of registration - I think that the OP understands this from the comment made.

If the turnover went over the threshold in January, then registration is actually effective from 1 March, so there will be no VAT due on sales for the rest of January or February.

Normally I would say to do the sums on the flat rate scheme, but it's aimed as much at administrative simplicity as savings. I'd agree with the OP that if it's necessary to work through thousands of invoices then I'd take the risk that the FRS might cost me a few pennies! There would only be a need to go through individual sales invoices if there are zero rated sales included - if not you can simply take the gross sales and work the VAT from that.

Although in structness it isn't possible to back date use of the FRS before the current VAT quarter, in practice HMRC are usually amenable to agreeing to it being applied from the date of registration in these circumstances.

I'll second the point about accounting software. It isn't expensive, and gives valuable information. How much would have been saved if it had pinpointed the correct date of VAT registration - and the date that you could de-register.

Actually, I'm not sure that being £14,000 under the VAT threshold is of itself enough to deregister. Deregistration is based on the question of turnover in the next 12 months. If you have a temporary dip due to illness, there would be an expectation that things will revert to normal, so don't be surprised if HMRC ask more questions about this

I'm sure that this is all good technical advice, but how are HMRC ever going to know that the OP breached the VAT threshold in January?

 

[Scalloway]

I saw it reported elsewhere that HMRC now look at accounts submitted for tax returns for turnover going over the VAT threshold, then check to see if the taxpayer is VAT registered.

 

[Spongebob]

I saw it reported elsewhere that HMRC now look at accounts submitted for tax returns for turnover going over the VAT threshold, then check to see if the taxpayer is VAT registered.

Fair enough, but the annual accounts filed with HMRC give no information regarding spikes in turnover which technically should result in VAT registration.

So long as the turnover over the year is below the registration threshold I can't see how they are going to know about a short-term spike in turnover during the year. Anyway, by shuffling a few sales invoices into quieter periods the problem can surely be overcome very easily.

 

[David Griffiths]

Fair enough, but the annual accounts filed with HMRC give no information regarding spikes in turnover which technically should result in VAT registration.

So long as the turnover over the year is below the registration threshold I can't see how they are going to know about a short-term spike in turnover during the year. Anyway, by shuffling a few sales invoices into quieter periods the problem can surely be overcome very easily.

Many problems might be overcome by lying. Whether that's permanent is another problem.

 

[Bitexxx]

Just a little update;

Registered for VAT then phoned them up. Lady was very easy to deal with and helpful, applied for the flat rate scheme which was sucessful and dated to march the first. No penalty was applied (they said everything was in on time?).

Have done the VAT accounts (took a whole of 1 hour), and sent my application away for de-regestering. Thanks again to everyone who helped in this thread