One-off turnover rise and VAT rules

Q: I own a small business supplying wedding decorations and am not VAT registered, as my usual turnover is around £50k. Due to a large order my turnover is likely to go to around £85k by the end of August. This order will not be repeated and I am unlikely to ever get such an uplift again. Do I need to register for VAT?

A: This is a quite a common issue, when a one-off order can inflate turnover beyond the VAT threshold, which will never occur again.

The current VAT threshold is £81,000 of taxable supplies. Firstly ensure that you have exceeded this. The turnover figure should include the value of any goods or services you supply within the UK unless they are exempt.

If you are definitely over the threshold you need to register for VAT or apply for an exception from registration. An exception for registration application must be made in writing to HMRC explaining why the turnover has exceeded the threshold, and why it is unlikely to be breached again.

It is useful to include evidence of why this will not continue, such as projections for the coming year and details of how the increase came about. However, the figure HMRC look at in this respect is the deregistration threshold of £79,000.

If HMRC agrees to the exception you must let them know immediately if circumstances change and you will exceed the threshold again. It is very likely that you will then have to register for VAT.

It is important to note that any attempt to separate two businesses artificially to avoid VAT registration will not be accepted.

For example if you had a hotel with a restaurant you could not run both as separate businesses to keep them underneath the registration threshold. If HMRC judge that they are one single business, prosecution can result, along with hefty fines.

For more advice, contact gail.kristiansen@renniewelch.co.uk or 01573 224391.