What happens if you don’t register for VAT when you should

If you have been putting off crucial business steps, you know there has to be a better way. If you don’t register for VAT once you have hit the threshold, your e-commerce business is going to accrue penalties, making the problem worse, not better.

Running an e-commerce business can keep you rushed off your feet, particularly at seasonal times and during periods of rapid growth, but that’s no excuse to avoid the admin side of your business. Delaying important paperwork is only going to add to your stress and your to-do list and in the case of VAT, if you don’t register when required, there can be serious financial consequences.

When must I register for VAT?

While there are pros and cons to registering for VAT before you hit the mandatory registration threshold, once your e-commerce business sales exceed the threshold you no longer have a choice. The 2019/20 VAT registration threshold is £85,000. If your business’ taxable turnover exceeds this amount or is going to in the next 30 days, you must register. The date of registration should be the date you realise your business will exceed the threshold, not when it hits that point.

The consequences if you don’t register for VAT

If your business is over the VAT registration threshold and you haven’t registered, then penalties will be applied. The penalty amount is variable, as it reflects the amount of VAT due, and how long ago you should have registered – see this as a call to action. If you should have registered already, registering as soon as possible could still limit the penalties applied to your account.

The penalty is calculated as a percentage of your overdue VAT payments. If you should have registered in the last 9 months, the additional liability will be 5%. If you are more than 9 months late, but less than 18 months late, this jumps to 10%. If you have delayed your registration by more than 18 months, it is 15%.

There is a minimum penalty of £50.

You'll need to register when you hit the VAT registration threshold
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Reasons for not registering for VAT

HMRC do have a list of mitigating circumstances that can be used to avoid a late registration penalty, but you will likely have to attend a tribunal or provide documentation to prove the circumstances are valid.

The circumstances listed on the HMRC website are:

  • Bereavement of a close family member
  • Serious illness
  • Doubt about the liability of supplies
  • Uncertainty of employment status

They do not accept ignorance of the requirement to register or a lack of funds to pay your VAT liabilities.

Next steps for VAT registration

If you do need to register, don’t delay. If you don’t register for VAT, you will have penalties to pay on top of your existing VAT liability, and the longer you wait, the worse it can get.

Once you are ready to register or if you’ve got an urgent requirement to register we can get you onto a priority registration queue, so simply get in touch with our team. We will be happy to help you choose the right VAT scheme for your business and ensure you are compliant with Making Tax Digital requirements.

The best time to start is now.