When a trader is late notifying Customs that he should be registered for VAT three things happen:
His registration is backdated to the date from which he was liable to be registered
He must also account for out put tax on his supplies and deemed suppliers from that date.
He is liable to a late registration penalty for the period of default
The late registration penalty is a percentage of the net tax due for the period of default and that percentage depends on the delay involved. The period of delay is from when Customs should have been notified to when they finally were notified or discovered the fact that the trader should have been registered for VAT
If registration is no more than 9 months late, then a 5% penalty is imposed.
If registration is over 9 months, but not more than 18 months late, then a 10% penalty
If registration is over 18 months late then a 15% penalty.
There is a minimum penalty of £50 for late registration and Customs have the power to mitigate any penalty charged by up to 100%. Interest is not chargeable on any outstanding VAT which is subject to the late registration penalty.
If a taxpayer has a reasonable excuse for notifying Customs late, Customs have the power not to impose the late registration penalty. There is definition of reasonable excuse in the legislation. There is, however, a definition of what is not a reasonable excuse.
The legislation states that an insufficiency of funds to pay the tax is not a reasonable excuse for no paying VAT and that reliance on another person to perform the task is not a reasonable excuse. Reasonable excuse applies to several different penalties.
For example, if a business had been waiting for its accountant to tell it when it should register for VAT and the business uses that as a reasonable excuse for being late, then that is reliance on another person to perform the task and that is not a reasonable excuse. Hence the penalty would still be imposed.
A list of VAT zero rated items
