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April changes to VAT 15/03/12

From the beginning of April, all remaining VAT registered businesses will have to file their VAT returns online and pay electronically from 1 April 2012, however, it has come to our notice that many small businesses hovering around the VAT threshold are debating whether it is feasible to de-register and thus avoid the hassle of online filing? For quick reference, the new deregistration threshold will be £71,000 from 1 April.

We asked Tonmoy Kumar Accounts Manager at ABDS for the points affecting business taxpayers, and suggest a simplification measure that would remove one unfair aspect of the current arrangement.

The registration threshold - £73,000 since April 2011 - is the value of taxable supplies made by a person at which he or she is required to be registered for VAT. It is obligatory.

Where taxable supplies are less than this figure, the taxpayer can choose to register. Where they make business-to-business (B2B) supplies, as a rule of thumb, it will be worthwhile registering long before the threshold is reached. Indeed, some 20% of all VAT registrations trade below the threshold.

There is a distinction between “taxable supplies” and “exempt supplies”. Exempt supplies include services such as education, finance, health and so on. Such income is not counted for VAT registration purposes. A business having only exempt income cannot register for VAT (unless as part of a Group registration).

VAT is very expensive if you get it wrong! With the standard rate at 20%, and penalties for misdemeanours, errors can be costly. So, if someone is late registering for VAT, the implications can be significant. With VAT being a key part of business life, it is striking how many people still register late.

From 1 April 2010, new penalty legislation applies to people who are late in notifying their liability to register. As with Self Assessment and PAYE penalties, the rates depend on whether the failure was careless or deliberate.
In some cases, a business that registers late can go back to customers and ask them for the VAT. However, this needs to be managed carefully, so as not to give the impression of a badly run business.

But it’s not just the threshold increase and “digital by default” that have raised the profile of registration. HMRC has targeted different business sectors with task forces to identify and collect underdeclared tax, including VAT. One of the key questions has been whether businesses should be registered for VAT. The VAT campaign result has prompted a leap in new VAT registrations; the mere threat of official HMRC action appears to have encouraged many small businesses to register.

If you have any questions about VAT or other Tax and Business related issues, contact Lavinia Newman, Stuart Coleman or Tonmoy Kumar to discuss how ABDS can help.

ABDS Chartered Certified Accountants of Southampton.
Tel: 023 8083 6900  E-mail:

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