VAT collection for newly registered businesses
Registering for VAT can be voluntary or compulsory. Either way it will take time for HMRC to get you in the system and issue a registration number. How should you deal with invoicing your customers during this period?
Time to register
The time it takes HMRC to register your business for VAT depends on several factors. For example, whether your business has started trading, or if you’re backdating your registration. It might be a month or more before you receive your registration number. Chances are you will issue invoices during this period and it’s important you get the VAT treatment right.
Accounting for VAT you don’t charge
HMRC’s guidance says: “You cannot charge or show VAT on your invoices until you get your VAT number. However, you’ll still have to pay the VAT to HMRC for this period.” This implies that you might end up out of pocket if the date you register from is before HMRC notifies you of your registration number. However, that’s not the case.
Tip 1. If you’re registering voluntarily you can ask HMRC for it to apply from a future date. We suggest a month in advance should be enough. You won’t need to charge your customers VAT until the date you’ve chosen.
Tip 2. You won’t lose out on reclaiming VAT for most types of purchase while you’re waiting for HMRC to register you. Special rules allow you to claim pre-registration VAT.
You’ll need to take care if you deliver goods to a customer but bill them later, say at the end of month, and your registration starts from sometime in between. Make sure that where you supplied goods before the registration you don’t charge VAT even though you’re registered when you bill your customer.
Billing while you wait
If you want to bill a customer after the date of registration has passed, but before your VAT number arrives, you have two options:
- send a bill without VAT and when you have the registration number send another for the VAT amount; or
- issue a bill but add an amount equal to the VAT, but don’t call it VAT (because the law says you must not). When you receive your registration number send an amended invoice showing the extra amount as VAT.
In our view the first option could cause your customers confusion as they will seemingly receive two invoices from you for the same goods or services.
Tip. Instead, add a separate amount to your bills equal to the VAT due and include a description against it which says: “This charge is in lieu of VAT pending registration. You cannot reclaim it on your VAT return until we send you a VAT invoice.” or words to that effect.
Invoice details. Once VAT registered you are required to show certain information which you might not have given previously (click here for details). You might need to tweak your invoice software accordingly.
Don’t show VAT on your invoices until HMRC has given you your registration number. Add an amount to your bill equal to the VAT with a note explaining that the extra amount is not VAT, but in lieu of it and that a full VAT invoice will follow when you’ve been notified of your registration number.
This information is provided courtesy of https://tax-essentials.indicator-flm.co.uk