VAT registration is mandatory for UK businesses exceeding a turnover of £85,000 in the past 12 months or expected to do so in the next 30 days. However, if this exceedance is a one-time occurrence, businesses can seek exception from registration by convincing HMRC that their turnover will not surpass the deregistration threshold of £83,000 in the subsequent year.
Traditionally, a paper VAT1 form and a written request for exception were advised to provide HMRC with a full picture of the business situation. With the switch to online-only registration after 13 November 2023, the challenge lies in ensuring HMRC acknowledges the exception request alongside digital registration.
If businesses don’t notify HMRC promptly about exceeding the threshold and later find out they should have registered, they may face penalties. Clear evidence must be presented to show the temporary nature of the exceedance and argue against the need for VAT registration.
Even if a business realizes late that it has passed the VAT threshold, an exception request is still possible, based on what was known at the threshold breach time, rather than actual turnover figures post-breach. HMRC will review the exception and notify the business of its decision. If the exception is not granted, VAT registration will be backdated, with potential penalties and interest applied.
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