How To Collect VAT Before You’re Registered

How To Collect VAT Before You’re Registered

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If you’ve applied to register a new or existing business for VAT, but you’re waiting for your registration number, when should you charge VAT for your customers and what’s the procedure for collecting it?

Shorter Delays

HMRC finally caught up with the times at the end of last year when it introduced its fully online VAT registration system. This has made the process less frustrating and reduced delays. Now, most businesses have to wait no more than two weeks from application before they receive their registration number; only around 30% will wait longer. Nevertheless, a wait of any length can mean trouble.

HMRC computer says “no” to VAT

HMRC’s business advice is that you can’t charge VAT before you receive your registration number. This isn’t a problem where you’re registering voluntarily, but it can be where it’s compulsory. In this situation the date of registration is fixed by law and it may pass by while you’re waiting to hear from HMRC about your application.

Tip. Where you’re registering voluntarily, perhaps as a new business, this can be to your advantage, you can ask HMRC for registration to apply from a future date. We suggest that three weeks from the date of your application is sensible.You won’t need to charge your customers VAT until the date you’ve chosen. But it’s still easy to go wrong.

Trap. Watch you don’t wrongly charge a customer VAT. This can easily happen, for example, where you delivered good to a customer on the first, but don’t bill them until the last day of the month and your registration number arrives in the meantime. It’s the date of supply that matters. You’ll need to set up your invoicing procedure to take account of this.

The VAT gap period

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 for the goods, but add an amount equal to VAT, but don’t call it VAT (see below). Then, when you have your number send a revised invoice showing the extra amount as VAT.

The first option might confuse or annoy customers, especially if they aren’t VAT registered. How would you feel having paid for something only to receive another bill for the VAT, days or weeks later? Therefore, we recommend using the second option. HMRC agrees, but also offers some odd advice.

Invoice details

HMRC says you should hike your prices to cover the amount of VAT, so if your list price for a product is £100 your should raise it to £120. It doesn’t take a genius to realise that this could cause trouble with customers, not to mention lead to extra work in having to temporarily adjust prices on your system.

Tip. Instead, add a separate amount to your bills equal to the VAT due and include a description against it which says something like “This charge is in lieu of VAT pending registration. You cannot reclaim it on your VAT return until we send you a VAT invoice”. This should keep everyone happy, including the Taxman.


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