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How to delay being VAT registered

19th December 2018

VAT registration is a problem facing small businesses (such as builders; car mechanics and domestic cleaning companies etc.) which make sales, principally, to the general public.  When their annual turnover exceeds £85,000, they must register for VAT and then pay 1/6th of their gross sales to HMRC.  However, there are ways of avoiding or delaying VAT registration: click here for video

Deliberately restrict annual turnover to less than £85,000

Some businesses restrict their annual turnover to below £85,000, to avoid VAT registration, by refusing to accept new customers; or by taking longer holidays when they don’t trade.  This does sound quite drastic – but it can prevent a big step backwards in profit. 

Incorporate the business into a Limited Company

If a sole trader (or Partnership) – selling goods or services to consumers – is getting close to the VAT threshold of £85,000, they can transfer the business to a Limited Company.  This resets the VAT turnover to zero – buying a lot more time before having to compulsorily VAT register, and possibly saving up to £14,000 in VAT. It’s important to be aware of one’s rolling 12 month turnover figure because, if the threshold is exceeded, the business will be forced to register for VAT, and the registration would automatically be transferred to the Limited Company.

Split the business into two or more businesses

Splitting a business into two separate trading entities (generally new Limited Companies) where one or both are below the VAT threshold, makes it possible to save a lot of VAT.

However, if the split is artificial, HMRC can, and will, treat all sales as being for one business for VAT threshold purposes.  So it’s important that the separate businesses are autonomous, with separately identifiable costs.  For example, one cannot break a business into two if they use the same staff, premises, marketing literature/website etc.  And it is vital to have sound reasons why one might split up a business – perhaps for geographical reasons, or because products or services are developed for a new customer market.