The most recent high profile person to be fined by HMRC for failing to register for VAT, is our very own Business Secretary, Vince Cable. Mr Cable is well known for his zero tolerance attitude towards “tax dodgers” so may well have winced when this became public knowledge.
It is reported he generated £192,000, through speaking engagements and providing consultancy, and a £1000 fine for late registration was, after appeal, later reduced by 50%.
An aide is quoted as saying that “he acted unknowingly”. Unfortunately this can also be said of the hundreds of businesses each year, who will also be penalised for late registration.
The law says that you must notify HMRC of a liability to register if your taxable income exceeds (currently) £73,000 in a rolling 12 month period. At the end of the month in which you breach this threshold you have 30 days in which to notify, normally by completing a form VAT1. The amount of penalty ranges from “deliberate and concealed” at 100% of the net VAT due, to 70% for “deliberate but not concealed”, and any other case at 30%.
There are however certain scenarios where the VAT man must reduce a penalty to reflect the “quality” of the disclosure. There are several instances where a penalty can be reduced, but in the main HMRC consider whether a disclosure is prompted or not, the length of time no disclosure was made, and the level of assistance provided; for instance providing a full schedule of the net VAT due etc.
No account however will be taken of an inability to pay, when considering whether a penalty can be reduced.
On top of the obligatory factors which must be taken into account when assessing levels of penalty, there are times when reasons for the non-notification of the liability of registration would constitute a “reasonable excuse”.
If you have a “reasonable excuse” for late registration, then no penalty would apply. Compassionate circumstances would be accepted where yourself or an immediate member of the family became seriously ill, or was recovering from illness, at the time notification was due. This would only be accepted if the individual was totally responsible for running a small business.
Alternatively you may have had a genuine doubt about the liability of your supplies, but this would have to be evidenced, for example, say by a written enquiry to HMRC, which left the matter in doubt or gave the wrong answer when all the facts were presented. Finally if there is uncertainty about employment status; whether you are self employed or not this constitutes a reasonable excuse but again evidence would have to be produced.
Ultimately the only sure way to avoid a late registration penalty is to keep a monthly running total of income, or have your accountant do it for you. However if you are one of those people for whom this is just impossible, then please give us a call and we can advise on what will produce the lowest rate of penalty.
For further information on help with VAT compliance, please call our tax consultants on 01455 852550 who will be able to advise you.