HMRC one to many VAT registration letters

HMRC has recently begun issuing “one to many” letters to businesses that have reported income exceeding the VAT registration threshold on their corporation tax or self-assessment returns.

The recent HMRC letters suggest that VAT registration may be required. However, this is not always the case.

When determining whether VAT registration is necessary, only the value of taxable supplies (in the VAT sense) should be considered. Exempt supplies, or those outside the scope of VAT, such as rent, healthcare or supplies to overseas business customers, are not included when assessing whether the VAT registration threshold has been exceeded.

Importantly, zero-rated income is included. This covers items such as certain books, food and children’s clothing.

The VAT registration threshold is currently £90,000. If the value of taxable supplies made by a business exceeds this level within a rolling 12-month period, there is a requirement to notify HM Revenue and Customs.

It is important to note that the past turnover test operates on a rolling 12-month basis and is not linked to financial years.

VAT registration is not always inevitable. If it can be demonstrated to HMRC that exceeding the threshold was a one-off event that will not be repeated in the next 12 months, it may be possible to apply for an exception from registration.

Any business that has received a nudge letter from HMRC should review its position to determine whether its taxable turnover has exceeded the VAT registration threshold.

• If the threshold has been exceeded, HMRC must be informed promptly
• If the threshold has not been exceeded, no further action is required

• Monitor income on a rolling 12-month basis, particularly where levels are close to the registration threshold
• Be aware of the different VAT treatments of income. While some supplies may be exempt (e.g. welfare or education), specific conditions must be met for exemption to apply
• If taxable turnover is expected to exceed the VAT registration threshold within the next 30 days alone, there may be an immediate obligation to register — particularly in cases involving large contracts or payments
• If your customers are VAT-registered businesses that can reclaim VAT, voluntary registration may be beneficial, allowing VAT on costs to be recovered

If you have received a letter for HMRC or would like advice on VAT registration please contact your regular Albert Goodman contact or the VAT Team