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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.

Acumen Tax Solutions
2 Purley Bury Avenue, Purley Oaks, Surrey CR8 1JB
Tel: 020 3669 5270 Mobile: 07813 582890 E-mail:

For information of users: Although every care has been taken in compiling this material, it only provides an overview and does not take the place of an individual consultation. We strongly advise all users to consult the detailed legislation or seek professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or this firm.

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