Exceeding VAT threshold temporarily

[sifr]

I exceeded the VAT threshold briefly in 2020, months May to July. Over by £10k.

I never noticed until my accountant did my year end books and send away an exception request in Feb 2021. So far so good. It was within the 9 months of the 'offence' being committed so likely would have been the 5% penalty charge and the 3 months I was over the threshold being charged the VAT (£2.2k).

No feedback was recieved from HMRC VAT, so assumed all was good (wrongly), as a letter has arrived this month Jan 2022 asking for more information regards the exception - asking reasons how it took place, why it wont happen again etc.

Post July 2020 my income went to 0 (zero) until October 2021. No contract and couldnt find any clients/work. So I went under the VAT threshold again quickly and for the next coming 12 months. Current contract value p.a. is around £75k started in October 2021, expected to end June 2022.

May be the case that I manage to get the exception, or I dont and I get a VAT number and pay the restrospective VAT and do a retrospective VAT invoice to the client(s).

Silver lining, losing contract for COVID is a blessing perhaps as no VAT due on zero income (I had to take a staff role during this time).

Anyone had a VAT threshold 'blip' and managed to get an exception?

[malvolio]

Don't understand a couple of things here....

1. The law is that if you exceed £85k turnover in a year you have to register for VAT. So how can you temporarily exceed the threshold.

2. Don't you track your company income so you don't make such errors in the first place? I know, you rely on your accountant to do that. Bad answer, it's your company,, not his.

HMRC's view will probably be that an exception is not warranted since your gross turnover has gone over the threshold, so an exemption is not warranted. You may get lucky of course, especially if you have a decent history of being under the threshold. But I'm not going to bet on it

[sifr]

1. https://www.gov.uk/vat-registration/when-to-register

Get an exception


You can apply for a registration ‘exception’ if your taxable turnover goes over the threshold temporarily.

Write to HMRC with evidence showing why you believe your VAT taxable turnover will not go over the deregistration threshold of £85,000 in the next 12 months.

HMRC will consider your exception and write confirming if you get one. If not, they’ll register you for VAT.

2. I dont rely on my accountant. I made an error in my calculation when 'totting it up' on the rolling basis


Hindsight is a wonderful thing. Its happened, so will be dealt with so no point making assumptions about me.
The question is how have any others applied for exceptions and what was the result.

[northernladuk]

No feedback was received from HMRC VAT, so assumed all was good

Terrible assumption to make, particularly with HMRC and particularly to do with VAT. You knew you had an issue but you chose to ignore it when you didn't hear back? That's just asking for trouble. Sounds like a complete comedy of errors up to this point. The poor accounting and ignoring issues.

No tax, and particularly VAT works on a credit system where you earning nothing the year after you go over means anything.

Regardless of sorting this particular issue, you need to look at your whole accounting set up to make sure this, and anything else, happens again. You taking more of an interest in your accounts would help here. Regularly reviewing and being aware where you are is essential for (now) obvious reasons. If VAT is quarterly why did it need your year end accounts to spot it. You must have been close by your 3rd quarter knowing it was going to continue. Anyway, shore up your accounting so make sure anything like this doesn't happen again.

I assume you aren't on Freeagent so a move that would help?

[sifr]

I assume you aren't on Freeagent so a move that would help?

I use the SJD spreadsheet for my bookeeping, modified for the changing tax rates. As i said, it was a calculation error.

I was going to be moving online to Sage just before the contracts ended, which would align to payroll, but when income = zero it was delayed.

Current contract not expected to exceed VAT threshold. If I get VAT registered if/when the exception isnt granted, I will deregister swiftly afterwards.

[malvolio]

1. https://www.gov.uk/vat-registration/when-to-register

Get an exception


You can apply for a registration ‘exception’ if your taxable turnover goes over the threshold temporarily.

Write to HMRC with evidence showing why you believe your VAT taxable turnover will not go over the deregistration threshold of £85,000 in the next 12 months.

HMRC will consider your exception and write confirming if you get one. If not, they’ll register you for VAT.

2. I dont rely on my accountant. I made an error in my calculation when 'totting it up' on the rolling basis


Hindsight is a wonderful thing. Its happened, so will be dealt with so no point making assumptions about me.
The question is how have any others applied for exceptions and what was the result.

The assumption is, I know my turnover for the year to date and I can see when (or if, these days) I am going to exceed the threshold. And that is the point where you apply for an exception, not afterwards. And is why I doubt many of us will have applied for one.

The SJD spreadsheet is also a bad tool for such things. Freeagent (other tools are available...) is used for a reason - including proper rolling P&Ls.

[jamesbrown]

This may not be a situation where it's easier to ask for forgiveness. As mal suggests, you would ordinarily need to register the moment you know that you will exceed the threshold, and you knew that it would, and then it did (and you failed to do anything, which is sloppy).

This is probably best answered by an accountant (or, in fact, your accountant) who should have some experience of whether they tend to be lenient, but I wouldn't bank on it.

[sifr]

This may not be a situation where it's easier to ask for forgiveness. As mal suggests, you would ordinarily need to register the moment you know that you will exceed the threshold, and you knew that it would, and then it did (and you failed to do anything, which is sloppy).

This is probably best answered by an accountant (or, in fact, your accountant) who should have some experience of whether they tend to be lenient, but I wouldn't bank on it.

I'll soon find out.

Im not asking anyone here what I should do. Im asking if anyone else here has had the same experience asking for an exception

[northernladuk]

Being with SJD is a mistake on it's own. There is thread running right now, just below this one about a poster that's had it with SJD and there are many many more if you post.

It's not good staying with them because everything is going ok because it appears with SJD it's only a matter of time before you get in a pickle. If you can suffer their constant change of accountants, the way out of date spreadsheet and paying far too much for all of it then fair play, but it will come unstuck like this. Putting up with all that and then it going badly wrong as well is poor management of your company. Leave now, get a better accoutant, better software, better service and for LESS money. Why people stay with them I really don't know.

[ladymuck]

Being with SJD is a mistake on it's own. There is thread running right now, just below this one about a poster that's had it with SJD and there are many many more if you post.

It's not good staying with them because everything is going ok because it appears with SJD it's only a matter of time before you get in a pickle. If you can suffer their constant change of accountants, the way out of date spreadsheet and paying far too much for all of it then fair play, but it will come unstuck like this. Putting up with all that and then it going badly wrong as well is poor management of your company. Leave now, get a better accoutant, better software, better service and for LESS money. Why people stay with them I really don't know.

I didn't realise people still pay for the SJD spreadsheet!