When to charge VAT - The Book-keepers Forum (UK)

MissyMay · Member

When to charge VAT

gbm · Guru

Hi Kerry,

The usual process is VAT registration is compulsory in the month when you breach the threshold - you have one month to sort things out, then you must be registered from the next month.

So if t/o goes over £71k in February, you have March to sort it out and you must be registered from 1.4.11.

VAT is only chargeable on jobs billed from 1.4.11.

I trust you provide services to none VAT registered customers, otherwise VAT shouldn't be an issue.

MissyMay · Member

Hi Nick

Thanks so much for your reponse. Yes services are to members of the public (construction, extensions, loft conversion etc).

In your scenario, anything billed in February and March, even if it were £100K (wishful thinking) I would not have to charge VAT on.

I think I read somewhere on HMRC that as soon as you apply to go VAT registered, you must charge VAT from that date, is that correct? Or do you wait to receive your VAT number?

Regards

Kerry

Shamus · Forum Moderator & Expert

Hi Kerry,

In the period between applying and receiving your VAT number you owe the VAT on products and services supplied but cannot actually charge it to the client.

You need to increase your invoices by an additional 20% for your services and then reissue the invoices once you have the number clearly showing the seperation of the VAT.

Take a look at the following page from the HMRC website.

http://www.hmrc.gov.uk/vat/start/register/waiting.htm

Specifically :

"Until you receive your VAT registration number you must not charge VAT, or show VAT as a separate item on your invoices. To make sure that you do not lose income in the period after you applied for VAT registration but before you receive your VAT registration number, you should increase your prices by an amount equivalent to the VAT rate relevant for your goods or services, and explain to your customers why you are doing so.

Once you receive your VAT registration number you can then reissue those invoices, amended to show your VAT registration number and the VAT charged. This will ensure that your VAT-registered customers can reclaim the VAT that they have paid".

Hope that this helps,

Shaun.

-- Edited by Shamus on Tuesday 1st of February 2011 01:06:58 PM

MissyMay · Member

Thank you so much. I'm glad I now realise that, otherwise I would have got caught!

Kerry

Wella · Expert

Just to confuse things

I have come across this on HMRC website, which may change things

Supplying goods or services within the UK. If your turnover of VAT taxable goods and services supplied within the UK for the previous 12 months is more than the current registration threshold of £70,000, or you expect it to go over that figure in the next 30 days alone, you must register for VAT. However, if your turnover has gone over the registration threshold temporarily then you may be able to apply for exception from registration see the section later in this guide for more information.

This seems to say that if you expect to go over (in this case, you know you will) that you should register.

It is also possible to get an exemption, if you believe it is a temporary situation

Bill

gbm · Guru

Bill, I think the 'temporary' thing refers to a situation where your annual turnover is going along at, say, £65k for the full year and you get a one off contract that is not part of your usual trade that tips you over.

MissyMay · Member

Thank you. That is very helpful. I do not know that I am going to go over in the next 30 days. So I think I will wait for the next job to take us over, then register
and allow for VAT on any future jobs after that. Hopefully that is correct.

Thanks again for all your help.

Kerry

MarkS · Expert

Hi Missy

The 30 day VAT rule only applies if you have sales that are over the VAT threshold in that 30 days period eg you expect your sales in the next 30 days to be £75k then you should register for VAT.

What it doesnt mean is that if sales in the last 7 months have been £65k and you have a large expected order in the next 30 days of £30k then because cumulatively that will take you over the £70k threshold over a 12 month period that you need to register the now. What you would do is you would wait until the you are over the threshold for the previous 12 months say at the end of this month (Feb 2011) then you need to be registered by 1 April 2011 the beginning of the month after exceeding the limits. VAT would be chargable and reclaimable from 1 April 2011.

Thats my understanding of the rules.

MarkS

MissyMay · Member

Thanks Mark I realllly appreciate that.

Here are the exact facts.
1) Currently carrying out a house extension that will be finished approx end of March. Once fully invoiced for this job we will be at a turnover of £65,000
2) 1st April we start a new job £30,000 which will be fully invoiced by end of April (actually there are stage payments that will take us over the threshold not sure if this confuses the issue).
3) My understanding is that at end of April we register for VAT as the £30,000 has taken us over the threshold.
4) We have one month to register so from 1st June VAT is payable.
5) Howevever we still have to allow for VAT in the interim from applying and receiving a VAT number ie from end of April to 1st June

That's my understanding now, Is that correct? As you can appreciate I want to make sure we get it right as VAT on £30,000 is a lot of money! We have not allowed for it our
original quoation and I don't want the tax man effectively asking us for close on £6K later down the line.

Kerry

gbm · Guru

Hi Kerry,

A couple of thoughts come to mind:

- in order to avoid having to charge VAT on the £30k, you should invoice all in one go, as Shaun suggested "In the period between applying and receiving your VAT number you owe the VAT on products and services supplied but cannot actually charge it to the client." Therefore, if you invoice the £30k all in one go, you will avoid having to issue any more invoices under this contract.

- it's probably a bit late for this, but if there were large amounts of materials being included in the invoiced amount, they could have been purchased directly by the client, thereby reducing your invoiced figure. Unless you're already doing this!

MarkS · Expert

Hi Kerry

I might be misunderstanding the VAT rule but my understanding is that your registration date is from the first of the month after when you go over the threshold.

From what i can see your turnover will go over the threshold in April when your cumulative turnover will be £95k (up from £65k at the end of Mar). Your VAT registration date would therefore be 1 June ie the start of the month after when you go over the threshold. This means that you wouldnt need to account for any VAT in April or May as you dont need to account for VAT until date of registration ie 1 June. So the £30k isnt an issue from a VAT viewpoint.

See the following extract from Notice 700/1 on the HMRC website (the gospel on VAT)

Have put the relevant points in red.

3.2 When must I notify you?

Where you are liable to register because at the end of any month the value of your taxable supplies in the last 12 months or less has exceeded the threshold, or the value of your relevant acquisitions has exceeded the threshold, you must notify us within 30 days from the end of the month that this occurred.

Where you are liable because you expect your taxable supplies or relevant acquisitions in the next 30-day period alone to exceed the threshold, you must notify us within 30 days of the date that expectation arose.

Where you are liable to register because the value of your distance sales has exceeded the threshold you must notify us within 30 days of the date this occurred.

Where you are liable to register because you make relevant supplies you must notify us within 30 days of making the supply or where you have reason to believe that you will be making a relevant supply in the next 30 days, you must notify before the end of this 30-day period.

Where you are taking over a business as a going concern you must notify us within 30 days of the business being transferred.

top ^

3.3 How will my registration date be decided?

Registration type

If you

Your registration date will be the

Taxable supplies

a. have already gone over the registration threshold (see paragraph 2.4), or

I think the issue between the period between applying and receiving your VAT number arises if say you go over the threshold at the end of April then you need to notify HMRC by 30 May. (within 30 days of the month end of exceeding threshold) If you dont notify them say until 29 May it will probably take them a couple of weeks to issue you your VAT number. Say you get your VAT number on the 10th May what do you do for sales invoiced between 1st May and 10th May? What you do is add VAT on the price (let your customer know what you are doing) then reissue the invoice with the appropriate VAT details when you have your VAT number.

See the following extract from HMRC website

Invoicing in the meantime

Until you receive your VAT registration number you must not charge VAT, or show VAT as a separate item on your invoices. To make sure that you do not lose income in the period after you applied for VAT registration but before you receive your VAT registration number, you should increase your prices by an amount equivalent to the VAT rate relevant for your goods or services, and explain to your customers why you are doing so.

Once you receive your VAT registration number you can then reissue those invoices, amended to show your VAT registration number and the VAT charged. This will ensure that your VAT-registered customers can reclaim the VAT that they have paid.

first day of the second month after your taxable supplies went over the registration threshold.

MarkS · Expert

Hi Kerry

If i was you it would be worth speaking to your accountant or a VAT expert for their viewpoint of dates etc.

Like you say you want to make sure you get it right and dont lose out on significant money if you get the dates wrong.

Though confident of what is said above is correct. As i had a client that we applied for VAT registration for and applied the logic above from memory.

MarkS