VAT - Retrospective invoices

[Contractor1983]

I am a contractor with a limited company, not registered for VAT as to date I have been under the VAT threshold.

As well as my own activities I am helping out a friend's company (my friend's business and my own contracting activities are different and not linked). This has been on an informal basis to date, but we've now agreed that I will get paid for my work (including work in past years) once my friend's company reaches a particular stage and so is in a position to do so.

I would like to invoice my friend's company, but know that I won't be paid for some time (could be more than a year), so am considering invoicing personally (as self-employed) rather than through my limited company so as to be able to account for this on a cash basis (it would be very inconvenient to have to pay tax on these amounts already, a long time before receiving).

In the present year the combined income, even fully on an accounting basis, would be below the VAT threshold. However, there is one past year where, if everything was on an accounting basis, I would have been over the threshold (if I invoice my friend's company a reasonable amount for the work in this period).

Am I risking falling foul of the VAT disaggregation rules in that past year?

And, if not, would I suddenly need to charge VAT retrospectively at the point in future where I receive the payment for multiple past year's work, even if the amount charged each year is below the VAT limit?

Thank you

[les35]

When considering whether you have exceeded the registration threshold, the test is not based on invoices issued or money received, but on tax points. So, what were the tax points for the work you have done? If the work was discrete 'parcels' of work, the tax points have occurred, and, based on your explanation, you are already liable to notify HMRC of your liability to register.
If you are not ecpecting the work to continue you could apply for exception from registration, although HMRC do not look favourably on such applications when they are late.
Another option would be to be employed, as such income is excluded from taxable turnover.

[RMC]

CB started in 20013/14; if you started working as S/E prior to that, you might be liable to tax, penalties etc. for failure to declare your self-employment on tax returns and register for NIC.

Unless you and your friend are related, the tax point for continuous supply of services (assuming that that is what you have been doing) is the earlier of payment receipt and invoice issue.

What to do now:
1. Register for Class 2 from the start of self-employment, at the same time applying for small earnings exemption.
2. Prepare accounts from commencement of trading, 2013/14 on cash basis – expenses such as business mileage and use of home are always worked out on actual basis. Losses up to 2015/16 can be included on your tax return, or amended tax return, for 2016/17. Explain the situation in the ‘white space’ of the return.

3. When you receive a payment, register for VAT and possibly FRS and annual accounting. However if you think your turnover in following years will be below the registration limit, write to HMRC to apply for exemption from registration.