Every business with an establishment in the UK must register for VAT
if their taxable supplies exceed £68,000 per annum (2009/10
threshold). The registration process is fairly straightforward, but it is not
as fast as it used to be so you can expect to wait around a couple of
months for your VAT number and Certificate to come through. You
should note that services received for business purposes from outside
the UK count towards your taxable supplies and may require you to
register for VAT, even if you do not actually make any taxable supplies
yourself or they are below the registration threshold.
All new registrations must be made on Form VAT1. This can be
downloaded from the Revenue website and is a 4 page form. There
are 22 questions on this form but it is not too daunting and can usually
be completed by the trader without professional advice. Note that you
can register on-line rather than send your registration through the post,
although you will first need to register with the Government Gateway or
VAT Online Services.
Question 9 can often be problematic as it is not always certain whether
or not a business is a going concern at the time it is taken over if it has
not traded for a while. Much will depend on the typical sales pattern for
that type of business. If turnover tends to be seasonal the business
may still be a going concern even if trading has ceased. The same
applies if there is an ongoing intention to resume trading in the near
future. You may also need to check sales records carefully to
determine the date from which you need to register.
It is important to note that the VAT turnover threshold includes income
from all trading activities run by the same person or persons unless
they are sufficiently dissimilar not to be regarded as all forming part of
the same business. Where the Revenue determines that a business
has been artificially separated, it has the power to direct that the
persons running these businesses be treated as a single taxable
person. Therefore, if you run more than one business and they are fairly similar, it would be wise to ensure that the commercial and
economic links between them are kept to a minimum, especially if they
operate from the same premises. In that situation, it is important for the
business that actually owns or rents the premises to issue a license
agreement to the others for the sub-letting and charge them a market
value rent.
Sole traders in particular should avoid any hint of business splitting,
which could enable HM Revenue & Customs to pursue output tax
going back up to 20 years. Limited companies are on slightly safer
ground as it is generally easier to prove that they are separate
businesses. If you keep individual bank accounts for each business
you control and make sure their income and expenses are kept
separate, you should be able to avoid any suggestion of deliberate
evasion.
This type of arrangement is very common in the pub trade, where
typically the drinks and catering sides are treated by the owners as
separate businesses. Unfortunately, the Revenue often takes a
different view in the case of such establishments and may issue an
aggregation notice ordering the owners to combine their taxable
supplies for VAT purposes. However, this does at least only take effect
from the date it is issued so there should not be any output tax to pay
on past supplies.
It can sometimes be beneficial to register voluntarily for VAT even if
your taxable supplies are below the registration threshold. The
advantage of this is that you can recover input tax on goods and
services going back 3 years. However, it would usually be
disadvantageous to do this if your customers are not VAT registered
themselves, as then they will be unable to recover the VAT you charge
them which could force you to either reduce your prices or become
less competitive. The same goes for customers who are partially
exempt, such as financial institutions of various types, as they cannot
recover input tax in full.
Finally, remember that you must account for output tax on your taxable
supplies from the date you should be registered, not from the date you actually are registered. This is the case even if your registration is still going through and you do not have a VAT number yet, but at the same time you are not allowed to actually charge VAT until you are given a VAT number. On the face of it, this looks like a no-win situation as you would have to pay the Revenue 7/47ths of your turnover without collecting it from your customers first. However, you are allowed to charge your customers an additional amount to cover the VAT (without actually describing it as VAT) and then issue a proper VAT invoice to replace the original invoice once your registration comes through.
