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VAT registration – delays

Due to COVID19, some businesses are experiencing long delays in obtaining a VAT number after submitting the registration form. HMRC acknowledged the delays earlier this year and have asked businesses to be patient whilst the backlog is worked through. However, a business that is new to VAT may be confused about what they need to do in the interim.

Strictly speaking, if a business is registering due to exceeding the historic twelve-month turnover threshold it must start charging VAT from the first day of the second month after exceeding that threshold. For example, if the management accounts for June 2021 show that sales have exceeded £85,000 in the previous 12 months the VAT registration date will be 1 August and the business must start charging VAT from that date. The problem is without a VAT number, the business cannot raise a valid VAT invoice.

One option would be to wait until the VAT number is received, however this could cause serious cash flow problems – some businesses have experienced delays of up to four months.

A second option would be to invoice for the full amount, but not to show the VAT as a separate line on the invoice. If this option is chosen, the total including the VAT should be shown as a single amount, and it should be made clear that a VAT invoice will be issued once the VAT number is received. The problem is that where the customer is also VAT registered, they may be reluctant to accept an invoice that is not a valid VAT invoice as they will be unable to reclaim the input tax.

A third option would therefore be for the business to invoice for the net amount now, and then send the VAT-only invoice later on once the number has been issued. It is advisable for businesses to discuss this upfront with customers to avoid any conflict.

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