Category Archives: VAT Registration

VAT: New guidance on exception from registration

By   2 June 2025
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HMRC has published new guidance which sets out how to apply for VAT registration exception if a business has temporarily exceeded the VAT registration threshold of £90,000 in any 12-month period (a rolling calculation).

What is registration exception?

If a business has a one-off increase in income it can apply for a registration exception. If its taxable turnover goes over the threshold temporarily it can write to HMRC with evidence showing why the taxable turnover will not exceed the deregistration threshold (currently £88,000 in the next 12 months). HMRC will consider an exception and write confirming if a business will receive one. If not, HMRC will compulsorily register the business for VAT. A business will need to formally apply to HMRC to make this exception official.

The guidance explains:

  • when to apply
  • how to apply
  • what happens after the application

Forms

A business will need to complete forms VAT1 and VAT5EXC in order to apply for registration exception. HMRC will write to the applicant within 40 working days of receipt with a decision.

If HMRC approves the application for exception

HMRC will not register the business for VAT. However, this is a ‘one-off’ and does not mean that the business will never have to register.

The value of taxable supplies must be checked every month, to establish whether they have exceeded the registration threshold. If they have, the business must:

  • register for VAT
  • apply for exception again

If HMRC refuses the application for exception

The response letter will explain why, and the information provided on the form VAT 1 will be used to VAT register the business. The applicant will need to account for VAT from the date it was liable.

Transfer of a VAT registration number – form update

By   19 May 2025
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A business can request transfer of a VAT registration number if it is taking over a company and wishes to use the previous owner’s VAT registration number, or the status of a business is changing, eg; a sole proprietor business incorporates or changes to a partnership. To do this form VAT68 is used.

VAT68

To transfer a VAT registration number because of a change in company ownership, the buying entity must complete both an application for VAT registration and form VAT68. The application may be independent from any existing registration, or it can be an application to join an existing VAT group or form a new one.

A form VAT68 can be submitted via email to HMRC at btc.changeoflegalentity@gov.uk with the VAT registration service (VRS) number included in the email subject line, or sent to the postal address shown on the form.

The update includes the addition of information to confirm an application for VAT registration should be completed.

Care must also be taken when buying or selling a business as the Transfer Of a Going Concern (TOGC) rules can be complex and as with all ‘one-off’ transactions, they are usually out of the ordinary and sometimes high value, giving rise to potential VAT issues. Please see: VAT triggerpoints.

Warning

Unless there is a good reason to transfer a VAT number, we usually advise that this is not done. This is to avoid inheriting the tax history of the previous owner. The buyer of the business can be held responsible for past errors, late payments, ongoing VAT issues etc. These may not be apparent, even after thorough due diligence.

VAT annual statistics updated

By   15 May 2025
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HMRC has updated its publication on the VAT official statistics from 2023 to 2024. It covers information on VAT receipts in the UK, statistics on the trader population and VAT registrations. The tables and commentary have been updated to reflect recent receipts.

Headlines

  • total VAT receipts in the financial year 2023 to 2024 increased by 7% to £168 billion compared to £158 billion in 2022 to 2023
  • the VAT population in 2023 to 2024 was 2,178,950, with 238,176 new registrations and 273,768 de-registrations in-year
  • total net VAT liability in 2023 to 2024 was £173 billion
  • the wholesale and retail sector was the largest contributor to net VAT liability (32%) with a total of £55 billion
  • traders with an annual turnover of greater than £10 million paid 75% of total net VAT liability (£130 billion).

VAT Planning: design and build

By   6 May 2025
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Planning

The construction of a new house, and the materials used by the contractor to build it, are zero-rated. However, architect and other building professional fees, eg; surveyors, supervisors, engineers, project or construction management and consultants, are always standard rated; even in respect of a new build.

This will represent an absolute VAT cost to:

  • individuals
  • entities which will rent the house(s) after completion
  • housing associations (in some circumstances)
  • certain entities which are not in business
  • any entity which will use the building(s) for other exempt purposes
  • entities which do not sell the house(s) – so onward zero-rating is not possible
  • any entity which cannot recover all of its input tax for various reasons

Aims

If it is not possible to structure matters so that these fees can be recovered (there are a number ways to do this, but not all will be available to all parties) then advisers need to consider ways to remove the VAT charge – this may also be preferable for cashflow purposes even if full input tax recovery is possible.

VAT Planning

Design and build – the steps

  • the housebuilder creates a separately VAT registered design and build company (newco)
  • newco purchases the professional services and construction services and incurs the VAT on these (the construction element is zero-rated)
  • these supplies are incorporated into a single onward supply of zero-rated design and build services to the housebuilder (a bundle) – the professional services are a cost component of the construction
  • zero rating applies to the supply to the housebuilder as the predominant supply of the bundle is the construction of new dwellings
  • newco recovers the input tax incurred on professional fees etc, as it relates to an onward taxable supply
  • newco is in a repayment position and HMRC refunds the VAT incurred on the costs – often after a pre-cred query

It is also possible to use an independent design and build company, or engage a contractor to carry out both the design and construction elements of the project with a similar result.

Considerations

It is important to implement the planning correctly. This means that appropriate contracts must be in place, the operation is carried out on sound business principles (actual supplies are made and it is not simply the moving of money).

Arrangements

In order to evidence the proper commerciality of the structure, it is important to bear in mind that:

  • appropriate contracts are in place
  • proper invoicing is required
  • the arrangements are at arm’s length
  • a profit for newco would emphasise the commercial aspect
  • all parties’ accounts reflect the transactions
  • newco combines all of its costs (including overheads/admin etc) and supplies them to the housebuilder as part of a single package of zero-rated design and build services
  • newco acts as principal and not agent (that the professional services are not disbursements)
  • the newco and the housebuilder are not in the same VAT group
  • care should be taken if loans are required (they may compromise arm’s length and genuine commercial contentions)

HMRC’s view

In HMRC’s Internal Guidance Manual VCONST02720 it states that:

“Zero-rating the construction of buildings: services excluded from zero rating: design and build

Architectural or design services supplied as part of a design and build contract can be treated as part of the zero-rated supply of construction services.

A typical design and build contract will require the contractor to complete the design for the works and complete the construction of the works.

In such circumstances HM Revenue & Customs (HMRC) sees the design element as a cost component of the construction and not as a separate supply of architectural services which would be liable to VAT at the standard rate”.

Consequently, this planning is recognised and accepted by HMRC, however, it is important that it is applied effectively so it is difficult for HMRC to challenge.

VAT Success Stories

By   22 April 2025
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I often write about how it is important to seek VAT advice at the right time, see triggerpoints. So, I thought that I’d give some practical examples on where we have saved our clients money, time and aggravation.

Investment company

HMRC denied claims for input tax incurred on costs relating to the potential acquisition of an overseas business and threatened to deregister the plc as it was not, currently, making taxable supplies. Additionally, HMRC contended that even if VAT registration was appropriate, the input tax incurred did not relate to taxable supplies and was therefore blocked.

We were able to persuade HMRC that our client had a right to be VAT registered because it intended to make taxable supplies (supplies with a place of supply outside the UK which would have been taxable if made in the UK) and that the input tax was recoverable as it related to these intended taxable supplies (management charges to the acquired business). This is a hot topic at the moment, but we were able to eventually demonstrate, with considerable and detailed evidence that there was a true intention.

This meant that UK VAT registration was correct and input tax running into hundreds of thousands of pounds incurred in the UK was repaid to our client.

Restaurant

We identified and submitted a claim for a West End restaurant for nearly £300,000 overpaid output tax. We finally agreed the repayment with HMRC after dealing with issues such as the quantum of the claim and unjust enrichment.

Developer

Our property developing client specialises in very high-end residential projects in exclusive parts of London. They built a dwelling using an existing façade and part of a side elevation. We contended that it was a new build (zero rated sale and no VAT on construction costs and full input tax recovery on other costs). HMRC took the view that it was work on an existing dwelling so that 5% applied and input tax was not recoverable. After site visits, detailed plans, current and historical photograph evidence HMRC accepted the holy grail of new build. The overall cost of the project was tens of millions.

Charity

A charity client was supplying services to the NHS. The issue was whether they were standard rated supplies of staff or exempt medical services. We argued successfully that, despite previous rulings, the supplies were exempt, which benefited all parties. Our client was able to deregister from VAT, but not only that, we persuaded HMRC that input tax previously claimed could be kept. This was a rather pleasant surprise outcome.  We also avoided any penalties and interest so that VAT did not represent a cost to the charity in any way.  If the VAT was required to be repaid to HMRC it is likely that the charity would have been wound up.

Shoot

A group of friends met to shoot game as a hobby. They made financial contributions to the syndicate in order to take part. HMRC considered that this was a business activity and threatened to go back over 40 years and assess for output tax on the syndicate’s takings which amounted to many hundreds of thousands of pounds and would have meant the shoot could not continue. We appealed the decision to retrospectively register the syndicate.

After a four-year battle HMRC settled on the steps of the Tribunal. We were able to demonstrate that the syndicate was run on a cost sharing basis and is not “an activity likely to be carried out by a private undertaking on a market, organised within a professional framework and generally performed in the interest of generating a profit.” – A happy client.

Chemist

We assisted a chemist client who, for unfortunate reasons, had not been able to submit proper VAT returns for a number of years.  We were able to reconstruct the VAT records which showed a repayment of circa £500,000 of VAT was due.  We successfully negotiated with HMRC and assisted with the inspection which was generated by the claim.

The message? Never accept a HMRC decision, and seek good advice!

New published guidance: Amendments to VAT groups

By   15 April 2025
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HMRC has issued new guidance on 14 April 2025 in respect of amendments to VAT groups.
This includes the use of forms VAT50, VAT51 and VAT56 to:
  • add a group member
  • remove a group member
  • change the representative member of a VAT group
  • request to disband a group

Furthermore, the guidance on the use of form VAT53 to allow an accountant, or agent, to register, or make changes to, a VAT group on behalf of a business has been published. Unfortunately, this form needs to be downloaded, printed, completed by hand, and sent by post to HMRC.

Details on VAT groups, including the pros and cons here.

How to authorise an agent to act on a business’ behalf for VAT here.

VAT: Types of legal entities

By   10 April 2025
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VAT Basics

What types of entities can be a ‘taxable person’?

The definition of a taxable person in the VAT Directive is any person or body “who, independently, carries out in any place any economic activity, whatever the purpose or results”. Economic activity in the UK broadly means any business activity. I consider this definition below. 

So, what is a person or body?

 In practice, a taxable person or body is generally a business, sole trader or professional. Examples of types of legal entities are a:

  • Sole proprietor
  • Partnership
  • Limited Liability Partnership (LLP)
  • Limited company (limited by shares)
  • Private company (limited by guarantee)
  • Public Limited Company (PLC) – a company registered under the Companies Act (1980)
  • Community Interest Company (CIC)
  • Charitable Incorporated Organisation (CIO)
  • Private unlimited company
  • Club or Association
  • Unincorporated Association
  • Co-operative Society (Co-Op)
  • Community Benefit Society (BenCom)
  • Trust
  • Charity
  • Not For Profit (NPF) entity
  • Right To Manage company (RTM)
  • Financial Mutual
  • Societas Europaea (SE)
  • Co-operative or community benefit society
  • “Section 33” body, eg; Local Authorities, Fire and Rescue Authorities, Police, Lighthouses, the BBC etc – VAT Act 1995 s33. These bodies have different VAT rules, and they may not necessarily be a taxable person

Each type of entity or structure is subject to separate rules; from; governance, direct tax, reporting, accounting, risks, costs, benefits, responsibilities to legal rights and obligations etc. However, from a VAT perspective, the VAT legislation applies equally to all taxable persons.

Two or more corporate bodies may apply to register as a single taxable person (VAT group) if they can meet certain conditions.

A corporate body can apply to register each division separately if it:

  • is organised in divisions
  • carries on its business in divisions
  • can meet certain conditions

What are not taxable persons?

Private individuals are not generally involved in business and will therefore not be classed as taxable persons.

What is business?

There is considerable case law on what constitutes ‘business’ for VAT purposes. I have written about this issue many times, as it is a fundamental issue in the tax.

The following articles consider such case law:

Wakefield College
Longbridge
Babylon Farm
A Shoot
Y4 Express
Lajvér Meliorációs Nonprofit Kft. And Lajvér Csapadékvízrendezési Nonprofit Kft
Healthwatch Hampshire CIC 
Pertempts Limited
Northumbria Healthcare

Registration

A guide to VAT registration here.

VAT: EORI – What is it? Do I need one?

By   10 April 2025
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VAT Basics
HMRC has published new  guidance on Economic Operator Registration and Identification (EORI) numbers. Although most of the guidance is not new, it is a reminder of what EORI numbers are and who needs them.
What is an EORI?

EORI is an acronym for Economic Operator Registration & Identification.

An EORI number is assigned to importers and exporters by HMRC (EOs) and is used in the process of customs entry declarations and customs clearance for both import and export shipments moving to or from the UK.

What is the EORI number for?

An EORI number is stored both nationally and on a central EU EORI database. The information it provides is used by customs authorities to exchange information, and to share information with government departments and agencies. It is used for statistical and security purposes.

A business may need to demonstrate to HMRC that it has carried out proper due diligence in certain cases.

Who needs an EORI number?

You will require an EORI number if you are planning to import or export goods. EOs can be sole proprietors, partnerships, UK incorporated companies, registered charities, and overseas companies. However, private individuals bringing their own possessions to or from the UK do not need an EORI number. An EO does not need to be VAT registered to have an EORI number.

For VAT groups, each member who imports or exports goods needs an EORI number.

Format of the EORI number

VAT registered companies will see the EORI as an extension of their VAT number. Your VAT nine digit VAT number will be prefixed with “GB” and suffixed with “000”.

How do I apply for an EORI Number?

Non VAT registered companies can apply using this link – FORM C220

VAT registered companies can apply using this link – FORM C220A

Once completed, your form should be emailed to:  eori@hmrc.gsi.gov.uk

How long will my EORI application take?

The process is straightforward and EORI applications usually take up to three working days to process.

Please contact us if you have any issues with importing or exporting.

EORI checker

Gov.uk has provided a new tool to check a business’ EORI number. (This used to be an EU resource now not available due to Brexit).

Access

Who has access to an EORI number?

The general public can access limited data, When a business is notified of its EORI number, it will be asked whether it objects to this data being published on the site.

VAT stats released

By   10 March 2025
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HMRC has released its annual VAT statistics from 2023 to 2024.

The headlines are:

  • total VAT receipts in the financial year 2023 to 2024 increased by 6% to £169 billion compared to £160 billion in 2022 to 2023
  • the VAT population in 2023 to 2024 was 2,178,950, with 238,176 new registrations and 273,768 de-registrations in-year
  • the total net  VAT liability in 2023 to 2024 was £173 billion
  • the wholesale and retail sector was the largest contributor to net VAT liability (32%) with a total of £55 billion
  • businesses with an annual turnover of greater than £10 million paid 75% of total net VAT liability (£130 billion)

Overall, it isn’t really a riveting read…

VAT Domestic Reverse Charge procedure Notice updated

By   4 March 2025
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The Notice sets out how the Domestic Reverse Charge (DRC) makes supplies of standard or reduced rated construction services between construction or building businesses subject to the charge. This means that the recipient of the supply will be liable to account for VAT due, instead of the supplier. Consequently, the customer in the construction industry receiving the supply of construction services will be required to pay the VAT directly to HMRC rather than paying it to the supplier. It will be able to reclaim this VAT subject to the normal VAT rules. The DRC will apply throughout the supply chain up to the point where the customer receiving the supply is no longer a business that makes supplies of construction services (a so-called end user).

 

The supplies to which the DRC applies are set out here

The update includes information on recipients of DRC supplies that are not VAT registered. Broadly; if a business buys specified goods or services, it may make it liable to VAT registered on the strength of the value of the DRC.