By Craig Reid, Partner
Business profitability can rise and fall and as a business grows, more obligations wait in the wings.
It can be easy for the unprepared business owner to be so caught up in the excitement of growth that they fail to properly account for when certain obligations begin to apply.
To ensure that you do not get caught out by VAT obligations, you need to know when it is worth registering for VAT.
What are the VAT thresholds?
If your business has a taxable turnover greater than £90,000 in any 12-month period, then you are automatically obligated to register for VAT.
Ignoring this responsibility will lead to you breaching compliance and getting punished accordingly.
As such, you need to keep a close eye on your taxable turnover to ensure that you are ready to act as soon as you see that threshold coming close.
If you expect to exceed the £90,000 threshold within the next 30 days alone, you must register for VAT by the end of that 30 day period.
If you have a sudden windfall and get pushed over the threshold unexpectedly, rest assured that this does not mean that you will be instantly fined.
Instead, you will have to register within 30 days of the end of the calendar month in which you crossed the threshold.
What happens if I fail to manage VAT properly?
Like all taxes, VAT must be handled correctly otherwise you will face a fine and penalties from HMRC.
In some cases, it may be necessary for the situation to be escalated to criminal proceedings if the violation is severe enough.
There is a minimum penalty of £50, but the true amount that you will end up paying is tied to the amount that you were avoiding in the first place.
Your penalty will be worked out as a percentage of the VAT due from the date when you should have registered to the date when either HMRC received your notification or became fully aware that you were required to register.
Depending on how late you registered, depends on the severity of the fine.
The breakdown is as follows:
| If you registered | Then the penalty rate will be |
| Not more than 9 months late | 5 per cent |
| More than 9 months but not more than 18 months late | 10 per cent |
| More than 18 months late | 15 per cent |
There are also penalties for being inaccurate with filing VAT returns.
If the error is the result of an honest mistake, you will face a penalty of 30 per cent of the potential lost revenue placed on your account.
Where you made a deliberate error but admitted to it, the penalty can be as much as 70 per cent of the potential lost revenue.
The worst fate awaits those who make an error and try to hide it.
For them, the penalty becomes 100 per cent of the potential lost revenue.
Seeking professional financial support is the best way to ensure that you do not need to worry about getting penalties.
Our team are on hand to ensure that your VAT obligations are understood and managed so that your business does not get caught out.
Speak to our team today to take the stress out of VAT management.