Failure to register for VAT on time - mitigation?

[DDebbil83]

Could anyone advise me on the following situation:

HMRC audits the accounts of a sole trader and discover that, 5 years ago, he exceeded the VAT threshold for one month only, before dropping back below the deregistration threshold ever since. The trader's business deals in buying and selling second hand electronics from and to private (non-VAT registered) individuals.

Is the trader likely to be retrospectively VAT registered for the entire 5 year period, and have to pay VAT on all turnover since then (potentially tens of thousands of pounds of VAT), or is there some way to reduce this liability? I have heard the phrase 'LNLL' (liable/no longer liable) mentioned, but do not know what the force of it is, and whether it would apply in this situation.

Any advice would be gratefully appreciated.

[les35]

HMRC will register you for the entire period, as that is what the legislation states.
The LNLL concession is how they calculate the VAT due for the period; do ask them to apply this.
And, you should see if you can use the margin scheme or global accounting, or perhaps the Flat Rate Scheme, rather than the usual method of calculating VAT. Either should bring a significant reduction in quantum.

[DDebbil83]

Thanks for your reply. Could you explain how the LNLL concession works?

[les35]

HMRC have a standard excel template, which excludes some months from the calculation if, considered on its own, that month the client would not be registered for VAT. But it is a concession, so difficult to confirm precisly how they do it.

[Lavender2306]

Could anyone advise me on the following situation:

HMRC audits the accounts of a sole trader and discover that, 5 years ago, he exceeded the VAT threshold for one month only, before dropping back below the deregistration threshold ever since. The trader's business deals in buying and selling second hand electronics from and to private (non-VAT registered) individuals.

Is the trader likely to be retrospectively VAT registered for the entire 5 year period, and have to pay VAT on all turnover since then (potentially tens of thousands of pounds of VAT), or is there some way to reduce this liability? I have heard the phrase 'LNLL' (liable/no longer liable) mentioned, but do not know what the force of it is, and whether it would apply in this situation.

Any advice would be gratefully appreciated.

There should be a four year cap, meaning that HMRC cannot assess you any vat outside this time limit.

[les35]

Always cautious about disagreeing with other advisers...
But, HMRC can back-date a VAT registration for more than 4 years.

[robbob]

The following is probably not relevant where a vat registration has already been processed but it has gone me thinking if this approach could work has the registration not been processed.


Does anyone know what the restrictions are with regard to applying for exemption from registration if for example this was a one of spike and was reasonably known at the time? - albeit the argument is only being put forward at the time hmrc realise the limit has been exceeded?

It seems a bit harsh if an exemption from registration would have likely/possibly been granted at the time had the client been organised enough to present the fact that this was somewhat of a one of spike in turnover not likely to be repeated and for that request for consideration not to be looked at as part of the formal process to actioning the registration (or not)

At a minimum i would consider this approach as an an initial attempt at avoiding hmrc proceeding with the registration probably too late after the registration is issued- or at least as an argument that the individual was no more than being careless in that all they didn't do was apply for the exemption at the time - if this could minimise any chances that info that old could be looked at.

I thought from memory i had previously seen hmrc accept "late" requests to avoid a registration where it was realised turnover had previously exceeded the threshold but the facts AT THE TIME THE REGISTRATION WAS EXCEEDED supported the fact that an exemption would have been granted had one been applied for.