The VAT charged to the solicitors will not be a problem because they will be registered for this and fully taxable. Contrary to popular thinking, there is no time limit between when a business becomes registered and when it makes its first taxable sale.
HMRC will almost certainly require evidence of trading intentions in the form of business plans, potential customer orders and possible deals with suppliers, or details about trading premises if relevant. They have the power to refuse an application should they not be satisfied of a genuine intention to make taxable supplies see Table.
The reason for the cancellation was that the director could provide no evidence that the company intended to make taxable supplies. The declared activity was the sale of beers, wines and spirits plus business consultancy. The director provided evidence of two wine sales for small amounts to friends eight months apart , but could not give details of purchase orders, correspondence, business plans or other documents about her intention to sell wine to retailers and restaurants, or carry on a proper business activity.
Her appeal against the cancellation of the registration was dismissed. In the latter case, the registration date is the beginning of the day period. In the case of the rolling month historical test, the registration date is the first day of the second month after the limit has been exceeded. This might give scope for a windfall of input tax — and the four-year window for input tax gains could be extended by pre-registration claims as well see below.
A common question relates to VAT returns for a retrospective registration. HMRC will issue a single long period return for the retrospective period rather than divide the period into quarters and ask for many different returns to be submitted.
As a final tip, ensure the requested date of registration is correct on the initial VAT1 application form. This is a tricky aspect of VAT accounting and is best explained in Example 2.
Mary is a self-employed tax consultant who provides services to one customer, a firm of accountants called Hyde and Co. She has retrospectively registered for VAT on a voluntary basis from her first day of trading and must submit a month return to HMRC for the period to 30 September It is now November Hyde and Co will claim input tax on the VAT return that includes this date.
Note The above process is important in the case of compulsory registrations backdated retrospectively, where a business might be faced with a late registration penalty based on the tax due in the late period. There are four big benefits to being VAT registered that small businesses can voluntarily enjoy.
The standard rate of VAT will apply to most goods and services sold. The reduced rate will apply to businesses like children's car seats and energy providers.
Zero rates will apply to food and children's clothes. This may not seem too exciting, but your business can benefit from displaying your VAT registration number on all your documents, website, and stationery. This can add credibility to your business and give you a more trustworthy and professional image. Once registered, you can reclaim for VAT on all goods and services your business buys. You can read more about that in our article on becoming VAT registered.
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What are the benefits of being VAT registered? Maintaining up to date records will provide better information for running your business. Talk to your accountant about the exact details.
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