Tax Forum :: Free Tax Advice

My partner's business always trades below the VAT threshold but due to a few busy months, turnover will be about 10K above the threshold by the end of May. After that he's planning to take 3 months off to ensure that he doesn't go above the threshold again. He wants to apply for exception from registration, but the Business Link site says that to qualify one has to 'provide evidence'. What kind of evidence will the authorities accept in these circumstances? I don't suppose they are going to believe the word of a self-employed tradesman that he's planning a 3 month sabbatical! Any advice would be greatly appreciated.

It would seem that the business must always trade pretty close to the registration limit if a few busy months put it 10k above?

No, normally it's pretty much under the threshold because he usually charges labour only and the customers obtain their own materials. However, recently he's had a run of jobs where he has been asked to get materials on the customer's behalf. It doesn't affect the company's profit because there's no mark up on the materials, but of course it increases the turnover. We thought of asking for cash up front to buy the materials but customers aren't always keen on this.

Be aware that the action of getting clients to buy materials to keep your turnover below the threshold could be seen by HMRC as deliberate and they may attempt to use the anti-avoidance legislation against you. They'd have to prove their view on this in court.

I'm not saying it is wrong, just don't mention your clients buying materials thing as it might ignite HMRC's flame a little. With regard having 3 months off, this is quite common practice in the trade (they go work for someone else for three months and earn a wage) and is an acceptable reason to give HMRC.

Despite all that, you may have to show HMRC that the last 'job' involved unusually high amount of materials hence pushing you over the limit but either way, it may attract HMRC's attention to the business.

dp,

If you have exceeded the VAT registration threshold then you *must* either:

1) Apply for VAT registration; or
2) Apply for exception for registration.

(2) will apply only where you can satisfy HMRC that your income over the next 12 months will be below the deregistration threshold (£59k).

I have had success in the past with applications for exception from registration that have not had any physical evidence to back them up but each case will be looked at independantly by HMRC.

On the basis that you have absolutely nothing to lose, I would recommend that you write to HMRC applying for exception and stating that your partner's income will fall below the deregistration threshold as he is to take some time off. It will help if you can state exactly what he is likely to do with this time and, if he is not earning, how he will support himself.

Regards

Paul Taylor
Senior VAT Consultant
http://www.dains.com/